When a company announces plans to go public, equity suddenly becomes very real.
For years, it may have been something you saw in your offer letter or on a cap table dashboard. Now it has a price, a ticker symbol, headlines, and eventually, liquidity.
This is also the moment when many tech employees realize they never fully understood how their equity works.
That’s normal. Most people ignore the details of stock options and RSUs while the company is private. The moment an IPO appears on the horizon, those details start to matter. Taxes, lockups, option exercises, and concentration risk can all affect how much of that equity you ultimately keep.
Over the years, we have seen many versions of this moment. Some employees turn a liquidity event into long-term financial stability. Others unintentionally create large tax bills or remain heavily exposed to a single stock for far longer than they expected.
If your company is going public, here is what is worth paying attention to now.
First, Know What You Actually Own
Most tech employees hold some combination of ISOs, NSOs, or RSUs.
You do not need to memorize the tax code, but you should understand the basic mechanics. When an IPO is approaching, these differences stop being abstract.
Incentive Stock Options (ISOs)
ISOs give you the right to buy shares at a fixed price.
The reason employees pay attention to ISOs is that they can receive favorable tax treatment if handled correctly. Gains may eventually qualify for long term capital gains rates, instead of ordinary income.
The complication is timing.
Exercising ISOs can trigger the Alternative Minimum Tax, which means employees sometimes face a tax bill even though they have not sold a single share. This tends to happen when the gap between the strike price and the company valuation has grown significantly.
When a company moves toward IPO, many employees suddenly start asking the same question: Should I have exercised these earlier?
Non-Qualified Stock Options (NSOs)
NSOs are simpler but less tax-friendly. When you exercise them, the difference between the strike price and the current share value is treated as ordinary income.
If the company is about to go public and the share price has risen dramatically, exercising options at that point can create a large tax bill.
We often see employees wait until the IPO is near before thinking about exercising. By then, the taxable spread can be much larger than expected.
Restricted Stock Units (RSUs)
RSUs are the most straightforward form of equity. They turn into shares once vesting conditions are met.
In many late-stage companies, RSUs have a double trigger structure. They vest over time but only convert into shares after a liquidity event, such as an IPO.
When that conversion happens, the value of the shares is typically taxed as ordinary income.
The key thing to understand is that RSUs can create a considerable tax event the moment they settle, regardless of whether you sell the shares.
The IPO Does Not Mean You Can Sell Immediately
A common assumption is that employees can sell shares as soon as the company starts trading. That is rarely the case.
Most IPOs include a lockup period, usually around 180 days. During that time, employees and insiders are restricted from selling shares.
This creates an unusual dynamic. You can see the market price every day, but you cannot actually sell.
Once the lockup expires, selling often happens quickly. It is common for employees to evaluate their financial situation, their exposure to the company stock, and their tax position all at once.
We often advise clients to plan ahead and use this moment to their strategic advantage, instead of reacting to the market when the time comes.
The Tax Consequences Can Be Larger Than Expected
Taxes are often the part of IPO planning that receives the least attention, until it becomes unavoidable.
Different events trigger different types of taxes:
- Option exercises may create ordinary income
- RSU vesting may create taxable income
- Selling shares may create capital gains
What surprises many employees is that these events can occur before liquidity arrives.
For example, exercising options close to the IPO price can generate a significant taxable spread. RSUs converting into shares can produce ordinary income even if you decide to hold the stock.
None of this is unusual. It is simply how equity compensation interacts with the tax code. But it is the reason planning ahead of the IPO matters.
The Bigger Financial Risk Is Often Concentration
An IPO can change a personal balance sheet almost overnight. Employees who joined early may suddenly find that the majority of their net worth is tied to a single stock.
Confidence in the company is understandable. You have spent years helping build it. But public markets can be volatile, especially in the first few years after an IPO. Even successful companies can experience significant price swings.
This is why many financial plans involve gradually converting concentrated equity into diversified assets over time.
That does not necessarily mean selling everything immediately. It simply means recognizing that a large portion of your wealth may now depend on the performance of a single company.
The Lockup Expiration Is Often the First Real Decision Point
For many employees, the lockup expiration becomes the first moment when equity decisions turn into real financial choices.
By that point, you may have:
- Vested shares
- Exercised options
- Accumulated a meaningful position in company stock
The question then becomes what role that stock should play in your long-term financial picture.
Some employees choose to sell a portion to reduce concentration risk. Others hold a larger position because they remain confident in the company’s trajectory. What matters most is that the decision is intentional rather than reactive.
Also read: Pre-IPO Guide for Employees: 5 Steps for RSU, Stock Options, Tax
Plan Ahead For An IPO With KB Financial Advisors
KB Financial Advisors works specifically with tech employees and founders managing stock options, RSUs, concentrated equity positions, and major liquidity events. Many of the conversations we have begin months before an IPO, when employees want clarity on option exercises, tax exposure, and diversification strategies before the lockup period arrives.
If your company is approaching an IPO or another liquidity event, having a clear plan can make a meaningful difference in how that equity ultimately translates into long-term wealth.
If you would like to review your equity strategy or understand the potential tax implications of your options and RSUs, we invite you to schedule a conversation with our team.
Planning ahead allows you to approach a liquidity event thoughtfully rather than making decisions under pressure.
