By |Published On: Sep 11, 2023|Categories: Financial Planning|

When the company you work for is about to go public, or IPO (Initial Public Offering), it’s a very exhilarating time. At the IPO, company stock can be bought and sold by the public, hence the name.

More importantly, as an employee who holds part of the private company through stock ownership, an IPO is an event where you can cash in on the shares that you own – hopefully at a much higher price.

Furthermore, an IPO is an opportunity to increase your net worth, and also a time to really understand what happens once your company becomes public. On paper, your wealth may increase substantially, but you have a lot to think about until your paper gains become real cash in your pocket.

Understanding an IPO

First, your company will file an S-1 document with the SEC. This document is required and it includes information such as company overview, industry background, and financial statements. Recent S-1 filings include Klaviyo, Instacart, and Arm Holdings.

Second, for the IPO, there is a price range for the company stock. For example, Arm recently filed an S-1 and the price range is $47-51 per share. If you own 10,000 Arm shares, your shares have a potential value between $470,000 and $510,000.

It’s going to be hard, but try to moderate your expectations. An S-1 filing is not a guarantee that your company will go public. The IPO can be delayed or it could never happen. Over the years, many companies have filed S-1’s that have never gone public.

Finally, if the IPO goes forward, the expected price range can change as demand for your company shares goes up and down. You will know what your shares are really worth on the day of the IPO.

Share Price Volatility in Stock Ownership

The IPO price is the price where the financiers sell the shares of stock. After the IPO, the stock price will fluctuate and there could be large swings both up and down.

If you constantly track the share price and incessantly calculate the value of your shares, you may cause yourself a lot of anxiety. A word of caution – you should be prepared for a lot of changes in the stock price and your net worth.

Selling Your Shares

Selling some of your shares when your company IPOs is an important consideration for you. You can cash in on all of those years of backbreaking work! Furthermore, you can reduce some of the share price variability with a large position in a single stock.

Typically, a large amount of dollars will be tied up in your company stock. An amount higher than 10% of your investment portfolio in one investment is risky due to the price fluctuations.

With stock ownership, it may not be possible to sell your shares to get below the 10% threshold due to a lockup period. If this is the case, you need a plan to sell your shares over time in a tax-friendly manner. You may also want to think about generating cash for other financial dreams.

Lockup Period

Most employees must hold their shares for a specified period of time after the IPO, typically 180 days. This means that you cannot sell any of your shares.

Moreover, your stock grant agreement has the details about the lockup period, so read through it carefully. If you’re confused about the lockup requirements, you can email me the stock grant agreement, and I will help you understand the information.

On occasion, a few company IPOs may allow you to sell some of your shares right away. It pays to read through your stock grant agreement!

Sometimes, a company has an early lockup release where you can sell some portion of your stock. For instance, you can sell X% of your vested shares Y days after the IPO.

Before Your Company IPOs, You Need a Strategy

How many opportunities will you have to take advantage of such a great financial windfall?

With so many things changing in your financial life, you need a strategy to manage your company shares, taxes, and overall financial picture.

If you don’t have a financial strategy in position, now is a great time to get one! You will save yourself a lot of money, time, and stress taking care of this before the IPO as opposed to afterward.

What questions do you have for me about your company’s upcoming IPO?