No one will judge you for taking a profit

When working in the startup and early stage investment ecosystem folks have recently asked me if they should sell or keep their pre-ipo/private company equity. My simple answer is -- that is part of your compensation and you should treat it as such. A few factors are brought up that I want to call out that I have personally seen and gone through:

• Some will shame you for leaving money on the table: There are no such gurantees in the markets. If someone gives you certainty to buy your shares at a give price -- that is the only guarantee. Public markets have that liquidity -- private don't. So if you get a a reasonable offer that is above your strike price -- consider it. No one will judge you for taking a profit. Those same people who shamed you will envy you if the markets are not favorable in the future.
• Some will say -- Oh .. its bad for the company if you sell: Ask, why is that? If equity is part of my compensation that why is selling bad? Its not bad for the company if I use my cash comp to buy things i need for my sustenance. Why is equity comp different? Especially if you are selling after you have left your startup -- in fact I encourage folks to sell a 3rd of thier holdings if they can. You have no control over how the firm is doing as you dont work there. What if its mismanaged -- you don't even have visibility.,
• What will I do with it: Diversify, diversify, diversify. If you sold $250k worth of startup stock and put it in the markets you can get almost 2 doublings over a 12 year period at a 12%-14% and get almost a $1m return on that equity. Or you could own other tangible assets like a home or art you can enjoy for the hard work you put in to get the start up off the ground. Note: this is not investment advice -- do what you do with your savings. Just sharing my experience here.
• Things to be aware that no-one will educate you: While exec's and founders often get large loans to exercise their stock, the common employee is often just spending out of pocket. Negotiate hard and ask for help. I personally sold 10% of my holdings to pay for the remainder of the options that i could finally book some profit from. Then there is taxes. Talk to your tax attorney as depending on how early you joined and how long you held the stock there are implications on how much you owe in capital gains. Brennan Moore wrote an amazing post a while ago on this. As he says in there and I quote "its like playing a board game with someone who didn't explain the rules ahead of time. Also my friend Alan Johnson has a great post on this.
• Where do I begin: Buy someone who has gone through this a coffee, talk to your network/tax folks. There are secondary markets like EquityZen , Forge and others who provide services for a fee that can vary based on how many shares you own. Worth it if you ask me as they do a lot of the leg work on your behalf - legal, negotiations, finding a buyer etc. If you already have a buyer and can do a little bit of leg work to craft legal docs, negotiate, manage fund transfer and chase down your comapany (who may or may not have the incentives to support you!) then you can save on these fees -- if you want to learn more on how to do this reach out -- Ive saved some of my templates. They can be meaningful.
• ROTH IRA and The Peter Thiel Maneuver: If you are reading this and have time use the Roth IRA which was created to make tax free investment up-to $7k - to hold your early equity. This is what Peter did supposedly and is looking at a $5B tax free payout. I certainly wish I knew this but the complexities of the tax code mean that only people who have the means can achieve some of these feats.

The dream scenario when leaving a stable tech gig for most heading to startups is the big equity payout. Remember that these a few greats and you should hold out hope if you see progress at the company but my rule of thumb has been sell 1/3rd every opportunity you get. No one will judge you for taking a few chips off the table. Hope this helps some of you.

Happy holidays!