Group 11 VC
Published in

Group 11 VC

The Scoop on Sorbet

Today, Sorbet announced a $21MM Series Seed financing round led by Group 11 with participation from Viola Ventures, Meron Capital, Rocket Internet Capital, and Global Founders Capital. This is Group 11’s first investment into the paid time off (PTO) optimizing platform. Sorbet incentivizes employees to take more vacation days while dramatically reducing the balance sheet liability of unused PTO for companies.

We Aren’t Taking Enough Vacation, and it’s a Problem

Paid time off is a vastly underutilized, mismanaged, and poorly understood asset that has an outsized impact on both employees and the companies they work for.

American employees, compared to peers in other countries, underutilize vacation time and often feel guilty about the time they do take off. On average, U.S. employees only use 72% of their PTO, leaving over 28% of their PTO unclaimed at the end of the year (LinkedIn). Unused PTO balances are an illiquid asset that employees unknowingly forfeit (somewhere to the tune of over $66.5BN in earned benefits annually), or can only access when they leave their companies (CNBC).

The trend of not taking time off has only accelerated during the COVID pandemic. In 2020, the average workday lengthened by nearly an hour; however, 92% of Americans shortened, postponed, or cancelled their scheduled PTO. This has caused increased levels of employee burnout and declining mental health. A Zapier study found that 22% of Americans are currently experiencing burnout, 20% feel more burned out than usual, and 72% say their mental health has been negatively impacted (Zapier). Workplace productivity is also taking a hit with 53% of workers feeling less productive and 44% having trouble focusing (Occupational Health & Safety).

For employers, the rapidly increasing balance of unused PTO equates to $272BN in PTO liability on their balance sheets which they cannot control or plan for (LinkedIn). If employees don’t use all of their vacation time for the year, employers can end up owing them large, unknown sums of money at unpredictable times, putting companies in risky financial positions.

Additionally, employee burnout, which The World Health Organization (WHO) now recognizes as a disease, is responsible for up to 50% more turnover and $190BN in annual burnout related healthcare costs — a nightmare of CFOs and CHROs (Forbes). Burned out, disengaged employees, who are defined as “unhappy and unproductive at work and liable to spread negativity to coworkers,” cost employers 34% of their annual salary (LinkedIn) or $550BN in additional churn-related annual expenses (Glassdoor).

And while there is increased focus on employee wellness, heightened by the pandemic, unused PTO continues to be a problem for company balance sheets and workplace satisfaction because leadership does not fully understand the murky economics of PTO liability and existing solutions are inadequate.

Optimization for the No Vacation Nation

Enter Sorbet. Sorbet is the wellness and optimization fairy godmother we all wish we had, including our employers. With a patent pending model that predicts the amount of PTO that will be left unused by each employee (based on preferences, PTO balance, work schedule, company policy, etc.), Sorbet recommends an optimal time plan that maximizes PTO usage and promotes wellness. Sorbet’s platform increases the time off employees actually take by 14%.

In addition, Sorbet enables employees to cash out the value of the predicted unusable time (a traditionally illiquid, inaccessible asset) onto a prepaid, virtual Visa card, which they can use to book experiential offers on the Sorbet marketplace or spend anywhere online or in-person. It is worth noting that while Sorbet offers cash out benefits, the company’s mission is not to disincentivize employees from taking time off, but to optimize the value of their time both on and off the clock.

For employers, Sorbet’s PTO factoring provides a number of benefits:

  1. Cash Flow Predictability: The platform decreases the balance sheet liability of unused PTO by incentivizing employees to take more time off, while providing cash flow predictability through the employee cash out feature, which smooths out the otherwise incalculable payouts of unused balances.
  2. PTO Refinancing: Sorbet provides funding for the employee cash out in the form of a low interest loan that the employer can pay back on their desired terms over time. Sorbet’s refinancing rates are much lower than average annual wage inflation rates, thus significantly reducing the cost of financing the PTO liability.
  3. Wage Inflation Protection: On average, U.S. employee salaries increase 3–5% annually (Investopedia). The increase in employees’ accrued, unused PTO balances compound annually with wage inflation. Sorbet’s platform enables employees to cash out the full, present value of their accrued PTO, preventing balances from being left unused and increasing at year end.
  4. Increase Tax Deductions: Under the IRS’ “2.5 Month Rule,” employers are only able to recognize accrued employee PTO as a tax-deductible expense during the first 2.5 months of the following tax year (The Tax Adviser). With Sorbet, employers can recognize accrued PTO as an expense year-round, in effect increasing tax deductions up to 4x. Additionally, by liquidating the balance of outstanding days through Sorbet, companies can save approximately 27.25% in combined federal and state corporate tax rates on their net gains (Tax Foundation).

Brain Freezing Savings

The financial benefits of Sorbet’s platform result in significant company savings. To illustrate, let’s use Walmart, which is as American as not taking vacation, as an example.

Only accounting for Walmart’s 740,000 full-time, salaried employees in the U.S., who have an average annual salary of $55,000, Walmart incurs a whopping $941MM in unused PTO liability annually (Walmart). And this is just from a fraction of their >2.3MM global workforce.

With Sorbet, modeling a 70% platform utilization rate and an 80% uplift in tax deductions, Walmart can conservatively save $243MM annually (a quarter of their current liabilities from salaried employees), while gaining control over their cash flows, and providing thoughtful wellness benefits to their employees.

We encourage you to go to our model to view our assumptions (which are publicly available information) and calculation methodology.

Case in point, Sorbet’s platform is a sweet solution for a massive $272BN pain point (less than 2% of U.S. companies offer unlimited PTO), successfully solving both employee and employer problems (Society for HR Management). There are tangential providers that offer seemingly comparable employee PTO benefits. However, Sorbet is uniquely differentiated as the only solution that improves wellness by quantifiably increasing the amount of time employees take off (by 14%) and alleviates the employers’ headache of unpredictable liabilities and cash flows.

We find this opportunity compelling because Sorbet provides an inventive and necessary enterprise solution that sits at the tricky intersection of wellness, productivity, and finances, and addresses all facets well. This is in large part due to Co-Founder and CEO Veetahl Eilat-Raichel, who is a seasoned financial services executive and brilliant brand strategist.

We are excited to watch Sorbet rapidly expand market share in the U.S. as they serve up significant savings to their customers and time optimization for employees. Congratulations to Co-Founders Veetahl Eliat-Raichel, Eliaz Shapira, and Rami Kasterstein, and the growing Sorbet family!

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store