Your Company Is Going Public. Here Are 5 Things to Consider.
What I’ve Learned Advising Employees Through IPOs
By Gibran Le, CFP®, CRPC® — Equity Edge Advisors
Introduction
Every day there’s a new headline about SpaceX, OpenAI, or Anthropic racing to file for their IPO. The buzz is everywhere right now.
I’ve helped employees at various companies navigate the exciting, complex, and often overwhelming period when their company goes public. And I’ll tell you what I’ve seen every single time: there is no shortage of information. News headlines. Colleagues sharing their plans. Reddit threads. Social media takes. The information is meant to help, but it usually overwhelms.
Here are five things I’ve learned advising clients through IPOs and what you should be thinking about if yours is on the horizon.
1. Manage Your Behavior
In the months leading up to an IPO, you’ll be researching more than usual. That’s normal. IPOs can be life-changing. They can accelerate a lot of timelines. You might start daydreaming about the house you’ll live in, the trips you’ll take, or what early retirement could look like.
That’s fine. But don’t let the daydreaming distract you from the fact that IPOs, if improperly managed, can create more costs than benefits. You need a strategy that allows you to act clearly during a period of heightened emotions and stress.
Three things I’ve learned from being in the room with clients during this phase:
Ignore the noise. I guided a lot of my clients through the Instacart IPO in 2023. Some of them told me: “I talked to a friend and they’re holding all of their shares.” Others said: “I’m selling everything.” Although you’re all going through the same event, how it applies to you is subjective and nuanced. Someone else’s plan has nothing to do with your situation.
No one can predict how the IPO will perform. Think about how many tweets or Reddit posts you’ve seen where someone claims the market is going to correct 40% or go on a huge run — only to be wrong. Look at Figma’s IPO. It listed around $33 a share, shot up past $115, and is trading around $21 today. Do not let someone’s overconfidence brainwash you into making a mistake.
Understand your options in the event of a layoff. You probably don’t want to hear this during a period of excitement. But I’ve experienced it firsthand — clients getting laid off shortly after IPO. Uber, Bumble, Instacart, Robinhood. A lot of companies grow aggressively as startups and then cut headcount post-IPO to restructure and keep shareholders happy. Be sure you understand what happens to your equity if that occurs. Options typically expire 90 days after your last day. Some equity may be accelerated. Know the terms so that you are prepared.
2. Have a Plan in Place
You need to understand the types of grants you hold. Not all equity has the same tax treatment. Whether you plan to sell some and hold some, it may make sense to maintain exposure in one type of equity compensation over another. Review all your equity documents with your advisor and understand the consequences an IPO will have on each one.
I’ve seen individuals manage IPOs effectively on their own. But if you don’t have the time or the confidence, build a team. A financial planner and a CPA — both well versed in equity compensation — is a great place to start.
Create a liquidity plan. Determine what you’re going to sell and when you’re going to sell it. A full analysis of your grants can help you project future income and figure out which shares or equity grants to prioritize when you start selling.
3. Understand the Restrictions That Apply to You
IPOs typically come with a lockup period — usually about 180 days — during which you can’t sell shares. I have seen some companies allow early liquidity on a limited number of shares, but that’s the exception.
And the restrictions don’t end after the lockup. Public companies typically have trading windows that open only after earnings data has been reported. Employees should expect to be blacked out from trading in the weeks leading up to earnings calls. If you’re used to having full control over when you buy or sell, this will be an adjustment.
4. Prioritize Tax Management
During the Instacart IPO, a lot of my clients had the option to choose either a 22% or 37% withholding rate on their shares. That decision matters — but it’s not the end of the tax planning process. If you sell shares with additional gain beyond what was withheld, you may owe more than expected.
Have proactive conversations with your advisor or tax professional about estimated tax payments. The worst time to find out your shortage is in April. The best time to figure it out is now, while there’s still time to plan for it.
5. Revisit Your Goals and Objectives
This is the most important item on the list.
Be fully aware of how this event is going to help you achieve the things you’re working so hard to achieve. The overarching goal of any financial plan I’ve created is to help my clients do what they want to do with confidence and clarity.
An IPO works in your favor when you are clear on what you want to do with it.
Your equity compensation was meant to move the needle. It does that, but only when you manage it.
Want to talk through how your equity fits into your financial plan?
Reach out to me at Gibran.Le@equityedgeadvisors.com
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Gibran Le, CFP®, CRPC®
Co-Founder, Equity Edge Advisors