Pre-IPO Wealth Planning

Equity Awards Blog - JLFranklin Wealth Planning

If you’re an employee of a private company on the verge of an initial public offering (IPO) or buyout, here are 5 things you need to do now to maximize your wealth potential:

  1. Prepare an inventory of your company stock, options, and other equity awards. Include the vesting schedule for each.
  2. Early-exercise your stock options, especially if you can do so with little out of pocket cost. You’ll start the clock ticking on long-term capital gains. Remember to submit an election form to both your company and the IRS, and to attach it to your tax return for the year in which you made the election.
  3. Stay focused and keep shipping. Continue to build your enterprise’s value, because a successful liquidity event is not guaranteed. Mark Zuckerberg had the forethought to encourage Facebook employees to keep focused on their jobs rather than the stock price—to “stay focused and keep shipping”—up to and after the company’s May 2012 IPO. The message had an impact. In the year after Facebook’s IPO, the stock price dropped dramatically. Yet, most employees stuck around, and the stock price has now passed the IPO level.
    Posted on Mark Zuckerberg’s Facebook Wall, February 1, 2012, with the caption, “My desk – at Facebook HQ.”
  4.  Avoid spending future wealth until after the IPO, when you have sold your stock, and have the cash in your bank account.
  5. Hire an accountant for personal tax and cash flow planning, especially if you are planning to early-exercise stock options. If you already have assets, a financial planner with tax expertise can help you understand your cash flow and financial picture before and after your wealth event.

Adapted from my book Life, Liquidity & the Pursuit of Happiness: How to Maximize and Preserve Your Startup Wealth and Live Your Dreams.