The Three Phases of an IPO. Which Are You In? What Ought to You Be Doing Now?







Should you work—or labored—at a non-public firm, possibly you suppose IPO planning is simply what you do within the few months earlier than and after the IPO.

After years of working with folks earlier than, throughout, and after an IPO, I’ve taken to dividing the IPO “journey” into three levels: 

  1. Years earlier than the IPO
  2. Instantly main as much as the IPO and one to 2 years after
  3. For the remainder of your life

If you’re conscious of those levels, and which stage you’re in, you possibly can extra successfully focus your time, vitality, and feelings as an alternative of you being extra….blllaaarrrhhhhggg. (That’s my finest description of the way it feels to be overwhelmed by ignorance and nervousness and an excessive amount of to be taught and do and no sense of focus. How’d I do?)

Your IPO is a transition. One among many you’ll undergo. 

I really feel compelled to notice, lest you get tunnel imaginative and prescient round “the IPO” particularly: An IPO generally is a large monetary occasion. And, essentially, it’s “simply” yet another transition in your life. 

As people, at just about all ages, we’re continually going by transitions, large and small: get married, change jobs, retire, have kids, transfer, have well being issues, inherit cash, and so forth. That’s life! The work of navigating all these transitions is what good monetary planning is all about.

Let’s focus on every stage of the IPO journey by way of:

  • What defines the stage?
    That is merely my framework, and it helped me perceive the IPO journey higher. Hopefully it can provide help to, too. Different affordable frameworks possible exist.
  • How liquid is your organization inventory at this stage?
    Put merely, how simple is it to show your organization inventory into money? May you purchase bananas along with your firm inventory cash tomorrow? The much less liquid your organization inventory, the less selections you will have. Which might be each good (fewer selections!) and dangerous (you should retain the danger of getting a lot of your potential wealth in your organization inventory).
  • How advanced is that this stage, and what sort of complexity is there?
    The extra advanced, the extra like you’re to be wired about it and to Do Nothing for concern of doing the unsuitable factor.
  • What are the perfect practices at this stage?
    Should you’re so inclined, you may skip straight to this half.

Stage 1: Years earlier than the IPO

Your organization hasn’t filed to go IPO. You hope it can occur within the subsequent one, two, or few years, however if you happen to’re trustworthy with your self, you don’t actually know when and if it’ll occur.

Liquidity: Most likely none.

You possible haven’t any method to flip your organization inventory into cash at this level.

Should you’re fortunate, possibly you will get liquidity (flip your inventory into money) by:

  1. Taking part in a young provide out of your firm 
  2. Promoting inventory by a non-public secondary market like ForgeGlobal or EquityZen

Often, although, you will have numerous potential wealth, however no precise wealth by your organization inventory. That is what you signed up for, proper?

Complexity degree: Some

You probably have double-trigger RSUs, there’s actually nothing to be accomplished about your organization inventory. Sit back and loosen up, man! That inventory gained’t grow to be yours till a “liquidity occasion,” like an IPO or your organization getting acquired. 

In one case, we’ve seen a (very massive) non-public firm absolutely vest a consumer’s double-trigger RSUs whereas the corporate was nonetheless non-public, as a part of a young provide, to permit its workers to promote a few of their firm inventory for money. This was very cool…and actually distinctive in our consumer expertise.

You probably have inventory choices, then sure, you will have a call to make: train or maintain the choices? At this early-ish stage in your organization’s existence, there’s most likely a lot of uncertainty in its future and so any cash you set into your organization inventory is of venture (i.e., you must depend on shedding it…all).  

How do you make this resolution? There are such a lot of issues.

Greatest Practices at This Stage

  1. Self work.
    Begin exploring and clarifying for your self What Is Essential to You? Who’re you, deep down?

    It’s this understanding—who you’re and what you worth—that can provide help to make the gnarly technical selections when the IPO occurs.

    However that is understanding that doesn’t simply spring into existence, absolutely shaped, like Athena from Zeus’s head. It’s a journey. One which by no means ends, in reality, and the extra time you give it, the higher your understanding of your self can be.

  2. Get the remainder of your monetary life so as.
    Why? In order that if/when the IPO occurs, you gained’t even be worrying about whether or not you will have sufficient life insurance coverage, or how a lot to save lots of to your 401(ok) or how one can make investments your 401(ok) or how it is advisable to get your will and powers of lawyer drafted.
  3. Determine whether or not or to not train exercisable choices (together with early exercising choices, if that’s out there).

This stage begins along with your firm submitting their S-1 to formally announce their intention to go public, goes by the precise IPO, after which lasts for a yr or two after.

Why does this stage final for thus lengthy after the IPO occasion itself? As a result of the direct impacts of the IPO proceed for a minimum of a yr after the IPO. You need to modify to the various new monetary realities of working in a public firm. 

Liquidity: Lastly!

That is what you’ve been ready for, for years! Should you’re nonetheless working on the firm, you’ll solely be capable of promote inventory throughout buying and selling home windows (and if you happen to’re a muckety muck within the firm, you could be topic to much more stringent restrictions). 

Complexity degree: Excessive technical complexity

That is an intensely technically advanced stage.

Main as much as the IPO and the IPO itself

You need to perceive:

  • When will the IPO occur?
    When your organization information its S-1, that doc will possible give some notion of when the corporate will IPO, however you’ll possible be taught the precise day solely a pair days prematurely. So that you’ll wish to get your preparatory work accomplished properly prematurely!
  • How the IPO will work?
    When will double-trigger RSUs vest? When will you be allowed to promote shares? Are there any restrictions on what number of shares you possibly can promote throughout these occasions? Are you able to select how a lot tax is withheld when your double-trigger RSUs vest?
  • Which monetary establishment goes to manage the IPO? (Schwab? Constancy? Morgan Stanley?) How does their internet interface work? (My guess = Not properly.)

Within the yr or two after the IPO

Now you’re working at a public firm and/or have inventory in a public firm. There are such a lot of main implications of this assertion.

  • Your RSUs at the moment are taxable after they vest. And also you possible owe estimated taxes.
  • Possibly now you will have entry to an ESPP.
  • You’ll be able to promote your organization inventory simply now! What number of shares and when are you going to promote? What are the taxes and the way will you pay them?
  • You now are topic to buying and selling home windows. That’s, you possibly can solely promote the corporate inventory (if you happen to’re nonetheless working on the firm) for a number of weeks out of each quarter.
  • Your tax return (and the way a lot you owe in taxes) for the yr of IPO goes to be bonkers.
  • Possibly you’re motivated to present to charity. How do you determine how a lot?
  • Exercising choices is totally different as a result of now you can train and promote, not simply train and maintain.

There’s clearly a number of technical work to be accomplished right here. A lot that the emotional work may get squeezed out a bit. However you must know that one of many greatest challenges of this transition begins now: your identification begins to shift from “I’m not rich” to “I’m rich.” 

That shift brings with all of it new emotions, behaviors, obligations, and potentialities. If our purchasers are any indication, this can be a bizarre and thrilling and discomfiting change. How are you going to work by that evolution? Will you even be you anymore?

Greatest Practices at This Stage

  1. Self work.
    Should you haven’t already frolicked determining who you’re and what you need, please put aside a while to speak by that with buddies, your companion, a monetary planner, and so forth. The clearer you’re on this, the simpler and higher your technical monetary selections can be.
  2. Find out how the IPO will work.
  3. Create and execute a technique for all of the elements of your fairness compensation:
    Know that this technique gained’t survive the IPO intact. As the primary few months or yr unfolds, it’s okay to revise the technique if issues unfold method in a different way than anticipated. However having one thing you possibly can adapt is method higher than making an attempt to construct the airplane whereas flying it.
  4. Be ready for chaos.
    We realized a number of classes whereas serving to a number of purchasers by the Airbnb IPO (which was, in our opinion, a really profitable and well-run IPO in most regards).
  5. Rent a CPA who is aware of how IPOs and fairness comp work.
    Severely folks, do not DIY this mom. I can’t say something categorically, however you’re Very Probably To Remorse not having an excellent CPA in your aspect. And don’t low-cost out on it both.
  6. Construct an funding portfolio, suited to your targets and your danger tolerance, that can stand the check of time.
    You’ve gotten actual cash now. Probably for the primary time, or possibly you simply grew current wealth a lot greater. Which means it is advisable to be critical (which doesn’t imply “sophisticated”!) about your investing, possibly for the primary time in your life. Learn our funding ideas right here

Stage 3: For the remainder of your life

After you get by all of the preliminary sturm und drang of the IPO—you’ve discovered how a lot you owe in taxes, you’ve realized how one can cope with RSUs vesting in a public firm, you now have an affordable funding portfolio, and so forth.—whether or not that takes one yr or two or extra, you can begin placing the IPO occasion behind you and begin determining: The place can I’m going from right here?

Liquidity: Heaps. All of the liquidity.

When you’re now not on the firm, you possibly can promote the inventory for grocery cash everytime you need (so long as you’re not married to somebody who additionally works on the firm…it occurs!). 

Should you’re nonetheless working on the firm, you’re nonetheless topic to buying and selling home windows. 

Complexity degree: Excessive human complexity

Relying on the quantity of wealth you now have, your technical complexity might nonetheless even be excessive. I are typically leery of sophisticated technical options, however typically there’s some unavoidable “complexity of privilege,” as I’ve dubbed it.

For sure, your private panorama has now completely modified. 

Your work at this stage is to orient your self on this new panorama, and discover the chances on this new stage of your life. What comes forward?

For all the worth of the technical work you’ve accomplished these previous couple of years to arrange for and get by the IPO, it truly is now that each one that work begins to repay, and also you get to begin designing a presumably very new life for your self.

There are fewer questions like “ought to I train my choices and promote or maintain?” and “when ought to I promote my RSU shares?” They’ve been changed with thrilling and sure angst-y questions within the class of “Effectively, I’ve acquired all this cash. Now what?” 

Questions like:

  1. Ought to I stop my job? 
  2. Can I cease working? 
  3. Ought to I’m going again to highschool? 
  4. Can I take a sabbatical? 
  5. Ought to I purchase a brand new house? 
  6. Ought to I absolutely fund my child’s school fund?
  7. I’ve actual considerations in regards to the state of the world. How do I exploit a few of this wealth to do one thing about it?

As my enterprise coach, a long-time monetary planner herself, describes it: there are three sorts of questions in monetary planning:

  • Easy: “Am I eligible to make a Roth IRA contribution?” You’ll be able to simply google it.
  • Difficult: “How a lot Various Minimal Tax (AMT) will I owe if I train these ISOs?” That you must truly work at that, however there’s an reply.
  • Advanced: To wit, all of these questions listed above. There isn’t an reply. There are innumerable variables, a lot of that are unknowable. The (or a) proper reply will find yourself being a mix of the numerical and the human.

When you get to Stage 3, welcome to Advanced. For the remainder of your life.

Greatest Practices at This Stage

  1. Self work.
    Have you ever observed the pattern? In large and small methods, it is advisable to proceed to find who you’re. This can be a notably good time to do targeted or prolonged work on your self. Now you will have the assets to make large modifications in your life. You may suppose that having the cash is the tip of the IPO journey. For my part, it’s actually only the start. The cash is a device for…what, precisely? That’s your work now.
  2. Proceed to execute (and assessment and adapt) no matter methods you created earlier than.
  3. Should you haven’t reworked your property plan since coming into this new wealth, please attain out to an property planning lawyer.
  4. Defend your wealth.
    Should you haven’t ensured that your insurance coverage protection (life, incapacity, umbrella legal responsibility, and so forth.) is suitable for this new degree of wealth, please attain out to an insurance coverage dealer. Relying on simply how a lot wealth there’s and what you do in your enterprise and private lives, there may must be different, extra sophisticated property planning work right here. An lawyer (property planning, household legislation, and so forth.) can advise you.

I hope that this framework for fascinated by your organization’s IPO is useful. I believe it’s an excellent framework, however it’s not the one one.

If you’re in your IPO journey and need a pondering companion to get you thru the straightforward, sophisticated, and advanced elements of it, attain out and schedule a free session or ship us an electronic mail.

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Disclaimer: This text is supplied for academic, basic data, and illustration functions solely. Nothing contained within the materials constitutes tax recommendation, a advice for buy or sale of any safety, or funding advisory companies. We encourage you to seek the advice of a monetary planner, accountant, and/or authorized counsel for recommendation particular to your state of affairs. Replica of this materials is prohibited with out written permission from Movement Monetary Planning, LLC, and all rights are reserved. Learn the complete Disclaimer.


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