Liquidity Events

A resource hub filled with expert advice about how to handle your company’s liquidity event.

employee stock options

What is an liquidity event?

A liquidity event occurs when you have the opportunity to turn your private company equity into cash.

These events can involve the sale of anything from stock options, to restricted stock units and shares. Liquidity events can exist as a single opportunity to sell or the start of a series of selling opportunities.

Whatever the specifics of your liquidity event are, strategically planning for it can set you up for a life-changing payout.

Types of Liquidity Events

Tender Offers

Sometimes referred to as secondary offerings, tender offers allow current and former employees to sell their company shares at a predetermined price. They tend to be standalone events and have restrictions around how much you can sell and when you have to decide what you’ll tender (or sell).

These structured liquidity events can range from early employees and founders selling shares in a fundraising round, to current and former employees of a late-stage, pre-IPO company exchanging equity for cash.

Acquisitions

These events occur when another company purchases your company.

There are two types of acquisitions:

1. All Cash

With this single-event acquisition type, you simply receive cash based on the amount of equity you hold, with no choice around what or how much of it you sell.

2. Cash & Stock

Oftentimes a series of events, cash-and-stock acquisitions entail receiving cash upfront, along with stock that you may sell during future liquidity events.

Initial Public Offerings

These occur when a private company becomes publicly traded by way of listing its stock on a public exchange.

IPOs kick off a series of liquidity events, including the first day you’re able to trade, along with follow-up selling opportunities depending on your employment status with the company.

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A four-phased approach to make the most of your liquidity event

We use this process to help our clients turn liquidity events into wealth and avoid costly mishaps along the way.

Getting organized

The first thing you want to do is gather all the documents pertaining to your tender offer, acquisition, or IPO. This will help you understand what equity you have, along with key dates and details that will aid in your planning.

Deciding how much to sell

Once you understand what you’re working with, it’s time to strategize.

Decide how much of your equity to sell, followed by what to sell. Different types of equity will produce different outcomes in any given liquidity event, so what you sell matters just as much as how much you sell. The optimal decision will maximize your cash while minimizing the taxes you owe.

Prepare for taxes

While taxes shouldn’t dictate what financial decisions you make, they should inform how you make them.

Calculate how much money you’ll owe if you sell your shares, then understand how and when you need to make those payments, whether it be in the form of estimated tax payments or the final bill that’s due with your tax return.

Avoiding tax errors can save you thousands of dollars, so make sure you make tax-informed decisions and avoid penalties.

Invest

Your journey doesn’t end once you’ve paid your taxes. With the right investment plan, the cash you’re left with can go even further.

Your investment plan is based on what you want and need from your portfolio, along with the appropriate amount of risk for you.

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