Aligning your Startup Options with your Financial Goals

Is leaving your company the only right time to exercise your options and turn them into shares? Should you wait for an IPO or an exit or liquidate your shares earlier?

These questions typically receive responses that are based on the company’s advancement and results. Many people make the mistake of waiting until they learn that the company is headed towards an M&A deal or an IPO to make their move. Unlike other financial decisions, which are based on the holder’s financial status and needs, exercising stock options seems to be focused mainly on external factors, which isn’t necessarily a good thing.    

It’s time for a new approach

The sad irony is that option owners’ financial condition is only considered when listing the possible obstacles standing in their way. People may refrain from exercising options if they feel that they should direct their financial resources elsewhere. Moreover, people may need financial resources and fail to realize that they can leverage these assets. This negative approach prevents many from using a critical, powerful financial resource.

If the above description sounds familiar, it’s time to shift your state of mind and view stock options and equity in an entirely different way. Leveraging your on-paper worth based on where you’re headed – not the company – is critical. This much-needed approach shift may influence other major life choices, like buying a house, starting your own company, or retiring. Your financial plans and goals must become the focal point in this discussion. After all, life waits for no one, and you are your own startup. 

Minimizing the risk = maximizing your resources

When asked why they decide against exercising their options, nearly 50% of surveyed option holders said they were afraid to make a mistake. This is completely understandable, considering that startup employees are not active venture capital investors and often lack the tools to make an informed decision. 

Refraining from cashing out at least some of your options or shares means taking a significant risk. Growing startups tend to be unstable, especially during a turbulent climate like the one the market is currently experiencing. Their value might drop instantly. Innovative ways to minimize the risk in exercising options make utilizing them, even partially, an even more relevant funding path. 

Even companies that managed to complete an IPO aren’t necessarily safe. Instead, they enter the lock-up period, forcing shareholders to wait up to two years before they can sell their shares. After these long couple of years are over, there’s no telling if the share’s value will match the company’s pre-IPO worth. Cashing out some of your current on-paper worth can not only hedge your risk but also secure your personal financial needs and goals. Option holders are starting to realize that when their on-paper value increases, they should cash out at least some of it.

Learn from success: Real insights based on actual experiences

What does it mean to leverage your options or shares and what can it be used for? Here are three real stories that offer valuable insights on this topic.

1. Rethink That Mortgage

An early employee from an Israeli unicorn in the Big Data realm approached us looking to finance a new house purchase. With our help, he was able to generate over 2.5 million NIS backed by his exercised vested options and still keep the majority of the future upside on a liquidity event. 

What we learn from this success story: Options and shares are a key financial resource that should always be considered when planning significant purchases. Even if you plan to keep working at your company – you can still leverage your vested options if needed. And if you choose not to liquidate your shares right now, be sure to run the numbers and explore the possibility. You can always check your current options and shares’ worth at Robyn Capital’s startup employee value calculator Don’t leave this critical asset out of the equation. You can have your cake and eat it by exercising and liquidating some of your vested options and keep others unexercised . 

2. Make smarter, calmer career choices

A former Ad-Tech company employee who was between jobs for a while due to Covid-19 approached us. While she was planning her next career move, she wanted to examine the cashflow we can offer backed by her previously-exercised options, which became company shares. The original exercise price was far from the current share value. We were able to offer an amount that was 5X the original exercise price, giving her the exercise cost back, plus 5X the price per-share, and an upside of over 75% from future gains when these shares are sold.
What we learn from this success story: Your previously exercised options can offer peace of mind while still keeping your future upside from a future IPO or exit. This allows you to make better career choices that will impact your financial status even further

3. Turn your former employee into your next startup investor

A senior manager from a large Israeli BI company needed funds to start a new startup. We were able to fund the options and offer an additional $250,000 that supported the startup’s initial bootstrap operations.
What we learn from this success story: Your career milestones pave the way in more ways than one. You gain not only experience and insights but also initial funding that gives your entrepreneurial plans a head start. This makes a lot of sense in the startup world, where employees help build the company and often have their own entrepreneurial aspirations.

Final Takeaways

  • Your startup options and shares open the door to countless possibilities.
  • It can also help solve your FOMO by reassuring you that you’ve made the right decision based on your needs and goals at the time.
  • When planning your financial future, don’t overlook your options and equity, and allow them to support your biggest dreams and turn them into reality. 
  • Visit Robyn Capitals Startup Employee Value Calculator to understand your current share or option value

Navigating Secondary Markets: A Strategic Approach to Selling Private Company Shares
Unlocking Employee Benefits: A Guide to Understanding Stock Options and Tax Implications
Think Like an Investor Part 4: Leaving the Company
Robyn Capital is an early stage and growth fund, financing exercising options for startup employees and equity liquidation for founders and shareholders. Robyn takes all the risk from the employee/stockholder, while they keep the shares and future upside.