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This startup enables workers to maximize ESPP benefits

Carver Edison Founder Aaron Shapiro joins Yahoo Finance’s Zack Guzman to discuss how his fintech startup aims to maximize employee stock purchase plan benefits for workers.

Video Transcript

ZACK GUZMAN: On today's start-up spotlight, I want to focus in on a very interesting new idea that's looking to close the gap when it comes to employees who are unable to take part in employee stock purchase programs out there. Sometimes-- I was in this boat, too. Sometimes you don't want to see your paycheck get diminished by all that much to buy shares but often at a discount, and it could actually lead to some pretty interesting wealth opportunities here, when we think about putting your money into those programs.

So here to discuss how Carver Edison, a new startup, is trying to help employees take advantage of those programs is the founder of the startup. Aaron Shapiro joins us now. And Aaron, I guess first we should just start by explaining how you guys actually make this happen. Because you know, I was just out of college. I was working at another company, and this was an option for me. But sometimes it's hard to actually make ends meet if you do put that money into these programs. So how are you guys helping?

AARON SHAPIRO: Yeah, absolutely. Thanks for having me on, Zack. Our core product, Cashless Participation, makes it possible for employees of public companies not just in the US, but around the world to maximize their contributions to their company's stock plan without actually having more money come out of their paycheck.

So much like a regular employee stock purchase plan works today, when you sign up, you elect how much money you want to have taken out of your paycheck. That money comes out of your paycheck every two weeks for usually about six months. And then right at the end of that six month period, before the stock is actually purchased, we work with the company to make it possible for employees to maximize the number of shares purchased without really having that money come out of their paycheck. So pretty powerful technology-- we've seen some amazing results so far, especially at the height of COVID-19.

ZACK GUZMAN: Yeah, so how does that-- I mean, in terms of applying, you know, the practice here, does it work as kind of a bridge loan? You provide the upfront capital for them to make it work and then at the end, they pay back what is owed and get to keep the upside? I mean, how does it work, structurally?

AARON SHAPIRO: Yeah, structurally what happens is we're actually sending the company itself the difference between whatever employees can afford to contribute at whatever the maximum allowable is under the plan. And from there, what the company does is they take the employee contributions, combine it with the Cashless Participation amount, and we get sent just enough shares to repay the amount that we send to the company. So the net effect for the average employee is without paying anything extra, when they log into their brokerage account, they're going to see between, on average, 50% to 150% more stock than they could have ever owned. And we're certainly getting our money back and making a little bit of money along the way.

ZACK GUZMAN: Yeah, what's interesting too, though, is that-- you know, I don't know if anyone cares that this happened to me where I couldn't take part in the employee stock purchase program-- but this is something that your own mother went through and kind of the impetus of the idea, too. I guess, you know, it's one thing to say, all right, maybe you can't participate because, you know, you want to keep a little bit more your paycheck.

But I feel like the other aspect of this too is how a little employees might know about the opportunity here to actually take advantage of these programs. So what have you seen on that front, and how difficult has it been maybe working with employers to get them on board with something like this that might also take a little bit more explaining?

AARON SHAPIRO: That's exactly right. There are two parts of the equation. It's the cost side, and it's the education side. And we actually just released a first-of-its-kind education platform called Carbon, which makes it possible for companies to build, schedule, and launch equity education campaigns in over 30 countries across 10 languages to their employees to do exactly that, to help people understand what their stock plan is really, how it works on a global scale.

ZACK GUZMAN: And when you think about the savings too, I mean, in your mom's case, it seemed like quite a bit when you think about how these stocks operate and the ability to get shares at a discount, which should never really be overlooked. But I mean, what are some of the, I guess, success stories that you have seen from people adopting the program so far?

AARON SHAPIRO: Yeah, it's a great question. In my mom's case, over the course of 15 years, it cost her over $1 million. And in case study we just released with E-Trade, who's been an incredible partner for us-- Scott Whatley and the corporate services team there has really been remarkable-- bring Cashless Participation to the market with us. But as we look at the results, we were able to turn for employees in one NASDAQ company about $3,700 into $13,000 in profit in a six month period.

Especially as you think about wage growth across this country for the most part being flat, what we were able to do is deliver in six months the equivalent of a 7% raise to employees of this company. And it-- and just, if I could give, to give you a sense of sort of the power of employee stock purchase plans and their returns, there's a great industry study that came out that took a look at the average return on investment for purchases happening in April of this year, at the height of some of the market volatility from COVID-19, and the average return from those purchases was about 40%.

If you go back to 2019, it's 31%, 2018, 26%. The only place you see consistent returns like that, generally, is coming from renaissance technologies and some of their funds. And the real power of this is especially in volatile markets, the powerful results that rank-and-file employees of publicly-traded companies around the world can realize from their company's employee stock purchase plan.