ISO sale advice

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Topic Author
blake22
Posts: 41
Joined: Thu Jan 31, 2019 2:01 pm

ISO sale advice

Post by blake22 »

Hi there, looking for some second opinions on an upcoming decision around some stock and options I hold of my employer.

I work for a private startup that hopes to go public in the next year or so. Over the last 3 years of my working there, the value of our private stock has I creased significantly.

Here are the facts and context:
- I have about 20,000 options at a $4 strike price.
- Last summer I exercised all of my vested shares (about 30% of total) to start the clock on LTCG
- Last summer they did a tender offer to let employees sell up to 10% of shares at $17/share, so I did that to “cover the cost” of my exercise of the other shares and eliminate some risk.
- The company has raised more funds and the value has gone 3x since last summer.
- I recently exercised more vested options (another 25% or so) to start the clock on LTCG and minimize future AMT hit
- The company says they might do another tender offer at $65/share soon for up to 10% of holdings

So my decision is whether or not to do that. The upside is I’d make about $130,000 before tax. The downside is I’d lose another 10% of shares, and could miss out on significant remaining upside when/if (I know it’s a big if) the company goes public in a year.

I’m strongly leaning towards doing the tender even though I could miss out on some tens of thousands of the stock continues to climb. By doing the first tender offer, I missed out on basically $100,000 in gains in the span of 9 months. So it doesn’t feel super theoretical.

Should I take the risk and hang into my shares, or take some cash off the table?

Our bet worth is ~$1.2M, with 1.1 of that invested. We are 38 years old with a 3 month old baby, renting in the Bay Area.
Topic Author
blake22
Posts: 41
Joined: Thu Jan 31, 2019 2:01 pm

Re: ISO sale advice

Post by blake22 »

Just doing a quick self-bump to see if anyone has any thoughts or advice, or if they've been in a similar situation before. Thanks!
milktoast
Posts: 417
Joined: Wed Jul 10, 2019 8:17 pm

Re: ISO sale advice

Post by milktoast »

Well that's a difficult one.

I recently passed on a tender offer from former employer, but in that case the tender offer was small relative to my annual compensation (about 15% of annual comp). Just doesn't move the needle, so I let it ride.

Getting $65 on a $4 strike over 2000 shares (10%) nets you $122,000. If that sounds like a lot of money, you should participate.

This is likely to go one of three ways:
- company doesn't go IPO. This may be your last opportunity to sell. I've lived this one.
- company goes IPO, pops to $130 and drops back down below $65 after the six month lockup. I've lived this one.
- company goes IPO, pops to $130 and climbs to $250. Still hoping for this one.

In the last scenario, you'll be missing out on 7% of your upside from tender offer.

Participate if the tender offer would make a significant difference vs your income over next year or two.
interwebopinion
Posts: 164
Joined: Thu Aug 13, 2020 6:21 pm

Re: ISO sale advice

Post by interwebopinion »

Do it. You never know what the future stock price is going to be, so take some of the winnings off the table.

BTW, exercising options will make you subject to AMT for that year. I think you mean "minimize future cap gains hit". With the FMV of the stock rising, your AMT exposure keeps going up, so at some price the AMT hit may be big enough so that it would be better to stop exercising. I'm sure you realize that you owe AMT even if the stock goes to 0.
dacalo
Posts: 146
Joined: Mon Mar 28, 2016 11:09 pm

Re: ISO sale advice

Post by dacalo »

Do whatever makes you sleep at night.

I worked at a startup and didn't participate in any of the tenders. Really didn't move the needle for us so I approached it as all or nothing. It did pay off for us, as when the company IPO'ed, the price went up significantly, to a point where we became FI. But each company is different, and the risk of whether IPO will actually happen or not is always there.
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