For employees working at venture backed companies, stock options can be the most valuable asset you receive. You've worked at your startup for years vesting your stock along the way, and now a new opportunity comes along but you need to exercise within 90 days of leaving.
Stock options are not a sure bet. For every private company you hear about going public or selling for a high price, many more are liquidated and the shareholders who own common stock in these companies after exercising their options lose 100% of their investment. A fact that most employees don’t realize is Preferred Stock owned by venture capitalists is paid off before common stockholders receive even one penny. With more and more companies raising billions of dollars, this sets the bar very high for common shareholders to make money on their options.
You have just officially left your job and you now have a very important decision to make? Should you exercise your stock options? When employees change jobs, they typically have at most 90 days to decide if they want to exercise their incentive stock options. For years, there were only 2 choices: exercise and take the risk of losing your investment or not exercise and lose the options and the possible profits. There is also the potential of trying to find someone who might be willing to buy your shares if you can find the right buyer, but you would lose future upside and is usually prohibited or impossible for all but the most famous startups.
There are three reasons to exercise stock options early even before you decide to leave your company for your next opportunity.
Exercise your stock early and you can earn up to 26% more due to potential tax savings on IPO or acquisition. Any money you make in an IPO or exit will be taxed. Exercising your stock options at least a year upfront can reduce that tax to the lower long-term capital gains rates.
Keep your equity, even if you switch jobs. Exercising stock options tends to get more expensive over time. But at most startups, you 90 days to exercise them if you leave (or else you lose them). Exercising early on prevents getting stuck later - even if you have no plans to leave anytime soon.
For select situations, we will help finance the early exercise of unvested stock options. By early exercising and filing an 83(b) election with the IRS, you can potentially pay a much smaller amount in taxes as your options vest over your time at the company. Taking advantage of 83(b) election will start the long-term capital gains holding period clock helping you reduce future tax liability. Taking advantage of this option allows you to create additional value as your options vest and your shares are sold in a future liquidity event.
Look at your stock option agreement (it included in your employment papers). The number of shares times your strike price equals the purchase price for your shares. On top of that, you may owe taxes, which can sometimes more that the stock options themselves!
Even if you have enough cash saved to pay for the stock, it may not make sense for you to spend it all on an exercising your stock options when you have not guarantee of making money.
Many startup employees fail to take advantage of the value of their stock options. Sometimes they wait too long to exercise, and by the time they wish to exercise the tax costs have become much money for something not guaranteed or the employee cannot get the cash together in time.
Now there is a new choice that gives stock option holders the ability to receive the cash they need to exercise their options and obtain all the potential upside with no risk. Receive non-recourse stock option funding from StartupStock and use that money to exercise your option without risking any of your own capital. Your stock is the only collateral. If disaster strikes and the company goes out of business and your stock turns out worthless, we assume the loss with no recourse to you. We will never hold your personal assets liable. take the loss.
You retain title of your stock and StartupStock does not require any principal or interest payments against the funding that a regular loan would require. Most importantly, you retain the possibility of enjoying future appreciation in value of your exercised stock.
StartupStock can also advance funds for potential tax liabilities associated with the stock, such as Alternative Minimum Tax (AMT). Even if you can afford to exercise your stock options and cover any associated AMT requirements that requires a significant bet on the company. By Leveraging our funding solution, you can diversify your risk by investing in other assets instead betting everything on one single company. Using our stock option funding solution will be a safer and less risky alternative than if you merely invested in one single company.
Designed specifically for startup employees, our stock option funding is fast and easy. We can complete most financing deals within 48-72 hours depending on the company. We guide you all the way through and our equity specialists will advise what's best for you and your situation.