“The company is going public”!
This news can create a mix of emotions – excitement, anxiety, gratitude, overwhelm – all of these are normal feelings. Upon discovering your company is going public, two natural questions that you may begin to ask are:
- What is my equity going to be worth and how can I maximize the value for my shares?
- How can I optimize my tax situation when I exercise & sell my shares?
These are both valid questions. It is important to begin planning for ways to retain more value for your shares, however, I believe these are not the initial questions that one should be thinking about.
In my experience, the best financial outcomes occur when someone has clarity on what they desire for their life to look like beyond the IPO. So before you start thinking about exercise decisions, tax savings strategies, and how much stock you will continue to hold post-IPO, start by asking yourself the following question, “Would I change anything about my life today if there was more money in my bank account?”
Reflect on this question. Allow yourself to dream a little bit.
One aspect of my job that I love is facilitating conversations for individuals to share their dreams and help them to align their money decisions with what they value. These conversations have led to some of the following uses for money:
- Building their dream backyard that includes a pool, a basketball court, & outdoor pizza oven.
- Buying a property to self-renovate because this couple loves rehabbing & designing historical homes.
- Spending a summer to travel to six different countries before the kids go off to college.
- Joining a country club, not as a status symbol, but because it has amenities that everyone in the family can enjoy and then they can share meals together at the clubhouse.
If you are totally content with your life, that’s amazing! Maybe additional money could buy more time for you to spend doing the activities you already love with who you love.
Once you have clarity on what your ideal life looks like, then you begin developing a strategy for how to approach equity decisions before and after an IPO.
Rule #1 when it comes to designing a plan for your equity – it’s personal. Once you have defined what you want for your life, then the next question to ask yourself is, “What needs to be true for me to say, “I did this right”, 12 months from now?”
Maybe your answer is that I optimized my tax situation. Although for a lot of folks, that’s not ultimately what moves the needle when it comes to feeling confident about their equity decisions.
I’ve seen individuals use their IPO proceeds to put a 40% down-payment on a home in their desired neighborhood that their family can grow into for years to come. Other individuals have used their proceeds to step-away from their W-2 job to recharge and pursue an entrepreneurial journey that is not as lucrative, but enables them to spend their days on work that energizes them. Fulfilling these objectives is what led these individuals to feel like they made the “right” decisions with their equity.
There can be a lot of distractions throughout the IPO process – Slack chatter among co-workers about what they are doing with their equity, investment analysts setting their price targets for your company stock, Reddit threads from someone who made millions by holding company stock post-IPO – tuning out the noise and focusing on what you can control is where I encourage my clients to devote their efforts. One of the best ways to do this is by getting clear on what matters most to you on the front end.
In Part 2 of this series, I’ll focus on mistakes to avoid leading up to and after your company IPOs.
The first step is aligning your company IPO with your life and what it means for your personal situation. Once you’ve nailed this step, then you can begin executing on your equity plan.