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When and how much of your employee stock should you sell? How do you diversify your portfolio after an IPO? Understand what you need to consider in order to make sound decisions in exercising your employee stock options and RSUs, from start to vesting.

When to sell your employee stock

If you work for a public company then you probably struggle with deciding when you should sell your stock options or RSUs. The data, which we’ll share in this post, clearly says you should sell immediately, but if you’re like most people, that just doesn’t feel right. Perhaps it’s because you feel like you’re being disloyal to your employer (you’re not), you would be embarrassed facing your CEO if you did (she will never know), or you fear the regret you would feel if your company’s stock continues to appreciate. In this post, we use historical data to examine the liquidation decision from the behavioral perspective of regret minimization. Strikingly, we find that the longer you wait to liquidate, the […]

Qualified Small Business Stock Is An Often Overlooked Tax Windfall

It’s no secret that small businesses have long been the growth engine of the US economy. With that in mind, over the years Congress has packed the tax code with lots of breaks for those investing in small business. One of the best breaks around — and no secret to experienced angel and venture capital investors in Silicon Valley — is qualified small business stock (QSBS). What Is QSBS? Like all things in tax, the IRS definition of qualified small business  can get complicated, and it changes depending on the section of the tax code in question. For our purposes, we’ll be focusing on Section 1202 of the Internal Revenue Code (IRC). To qualify as QSBS under Section 1202: The […]

When Should You Exercise Your Stock Options?

Stock options have value precisely because they are an option. The fact that you have an extended amount of time to decide whether and when to buy your employer’s stock at a fixed price should have tremendous value. That’s why publicly-traded stock options are valued higher than the amount by which the price of the underlying stock exceeds the exercise price (please see Why Employee Stock Options are More Valuable than Exchange-Traded Stock Options for a more detailed explanation). Your stock option loses its option value the moment you exercise because you no longer have flexibility around when and if you should exercise. As a result many people wonder when does it make sense to exercise an option. Tax Rates […]

How New College Grads Should Approach Stock Compensation

Over the past two years we have written numerous posts to help you evaluate job offers that include stock options or Restricted Stock Units (RSUs). We assumed in all our posts that job seekers were evaluating offers from companies at a similar level of maturity. For many new graduates, however, the comparison gets more complex if you aren’t sure whether you want to join a very mature company like Google or an earlier stage company like one of our recommended mid-sized companies with momentum. The purpose of this post is to help make that task much simpler. The Mechanics of Stock Options Let’s start with the basics of stock compensation. A stock option gives you the right to buy common […]

How to Trade Salary for Equity

These days it’s more important than ever to maximize the financial value you extract from your job. In You Need Equity To Live In Silicon Valley we made the case that it’s very hard for a Silicon Valley based couple who earns $250,000 per year to afford to buy a home and put their kids through college without generating wealth from an equity stake in a private company. We have written numerous posts to help you identify the kind of employer that is most likely to help you achieve your goals (peruse the Careers section of our blog to see them). This post focuses on how you might think about trading off some salary for additional equity, something we are […]

Why Employee Stock Options are More Valuable than Exchange-Traded Stock Options

A few years ago, as I was delivering a job offer to a candidate at my previous employer (LinkedIn), I received a question that surprised me. The candidate, smart and financially savvy, had come through the interview process convinced that LinkedIn had tremendous upside as a company, but he still wasn’t sure my offer was appropriate. He had already asked the key questions necessary to evaluate his offer — including those previously covered in the 14 Crucial Questions About Stock Options — but now he had one I had not encountered before: “By coming to LinkedIn and taking these stock options, I’m betting a lot of my compensation on the stock going up. Why can’t I just buy LinkedIn options […]

The Impact of Dilution

Most people don’t realize that the percentage of the company they are initially awarded when they start a new job is not  what they will ultimately own. That’s because private companies tend to raise additional capital as they mature and the ownership associated with the additional capital dilutes your ownership. Your ultimate ownership depends greatly on the maturity of your employer at the time of your offer and the rate at which it grows. Before I show the impact of future financings on your ownership I need to explain how a successful company trades ownership for financing. Dilution from Financing These days a very successful company may need four or five rounds of financing before it has the opportunity to […]

The Two Types of Job Offers

In the past we have written numerous posts to help you evaluate specific job offers, but recently we realized we neglected a critical piece of information. There are two distinct job-offer approaches companies take; each can provide you some real insight into how they operate. Some companies believe in starting with a low offer to see if you will negotiate, while others offer fair market value and usually are not willing to negotiate. There isn’t a correct answer but you do need to recognize which type of company you’re dealing with and decide which type of company you want to work for. The Low-Ball Approach Unfortunately, a common characteristic of very successful entrepreneurs is they are often very cheap when […]

A Good ESPP Is a No-Brainer

Ask These 12 Questions About Your Options

An often overlooked and potentially valuable employee benefit is the Employee Stock Purchase Plan (ESPP). If your employer offers an ESPP we recommend you   1) participate at the level you can comfortably afford  and then  2) sell the shares as soon as you can. This strategy should allow you to lock in a generous return on your contributions while avoiding additional risk on your company stock, which may already represent an outsized percentage of your net worth. To appreciate why this strategy makes sense let’s cover some basic questions: What is an ESPP? How does an ESPP work? Should you participate? How are ESPP gains taxed? When should you sell the stock you purchase through an ESPP? What is an […]

Announcing Selling Plan for Facebook

The ties between Facebook and Wealthfront date back to the earliest days of our service. Facebook employees and executives were some of our earliest adopters, as well as advocates, and they played a critical role in helping us attract more than $1 billion under management in less than 2 ½ years. In retrospect, it shouldn’t be a surprise that one of the industry’s greatest engineering cultures would favor an automated  investment service. In recognition of our deep history, we’re excited to announce a feature we wish we had for Facebook employees, ex-employees and investors back in 2012 when Facebook went public — Selling Plan. The Facebook Equity Culture Facebook’s success quickly made the company one of the titans in the […]