Preparing for an IPO

Tips for employees preparing for an IPO

For many tech companies, the goal is to go public. Spotify and Dropbox took the leap last year, and Lyft, Uber & Pinterest have filed with the SEC for listing in 2019. An initial public offering (IPO) can launch businesses into the stratosphere. When a company goes public, it stands to generate an influx of capital and influence. An IPO does not guarantee instant wealth but under the right circumstances, one absolutely can.

In many cases, employees have had the opportunity to participate in stock ownership by receiving stock options or Restricted Stock Units (RSUs) during the course of their work history with the company. If the company you work for is talking about going public, you may be standing at the precipice of a new lifestyle.  Prepare ahead of time and position yourself to take advantage of an IPO.

Evaluate your opportunities with your existing/future stock grants

There are three common types of stock options/grants: Non-Qualified Stock Options (NSOs), Incentive Stock Options (ISOs) and Restricted Stock Units (RSUs). All three carry different tax treatment and planning opportunities upon exercise and vesting. Significant mistakes can be made if the proper attention is not paid to the tax ramifications so it is imperative to consult with a professional who can properly advise as to how best financially plan following an IPO.

Employees who have vested stock options or RSUs must also abide by a “lockup” period, imposed by the SEC. In most cases, this is 180 days from the IPO.  This waiting period helps stabilize market shares but also increases employee risk.  A lot can happen in six months; by the time you can sell your shares, your company will have likely reported 2 quarters worth of earnings and the stock could be significantly up or down from the IPO price. Having an already established plan with what you would like to do with your vested shares can remove a lot of questions that may arise as the lock up expiration period is exhausted.

Preparing for Financial Changes

No joke, an IPO can potentially make you very wealthy.  Employees with the right companies, who sell at the right time can make a life-changing amount of money.  Much like lottery winners who now live destitute lives, those who cash in on an IPO have no guarantee of lifetime wealth.  If the initial trading day goes well, and the lockup period proves positive, preserve what you have.  We recommend taking the below step to manage your newfound wealth:

Retain a financial firm dedicated to personal financial management.  The right financial consultant can help you preserve your current wealth, and help you find ways to generate new wealth.  While the family tax accountant may be an old friend, partnering with a firm that has “been there before” can offer much more clarity and confidence in your financial future.

If your company is going public, it’s going to happen whether you are prepared for the changes or not. Talk to an advisor to learn what and how that might impact you and your family.  An IPO can be your once-in-a-lifetime opportunity to become a millionaire, make sure you seize it!  The more information you have, the better able you are to decide.  When the time comes to act, be ready. Make a proactive decision to speak to a seasoned advisor.  Whether a new investor or a veteran in the stock market, we can help position your financial life to take advantage of an IPO.  Call the team at Overland and Shanahan Wealth Advisors to learn more.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.