Netskope employees: What to consider about your stock options ahead of IPO

Netskope has become a standout in cloud security, backed by strong growth, major enterprise adoption, and top-tier investors. The company formally filed its S-1 with the SEC in September 2025, confirming its plans to go public. According to the filing, Netskope generated $1.16 billion in revenue for fiscal year 2024, representing 39% year-over-year growth, though it also reported a net loss of $479 million. The S-1 highlights its customer base of more than 3,400 enterprises worldwide, including over 40% of the Fortune 100, underscoring both its scale and competitive positioning in the cybersecurity market.

If you've been granted stock options at Netskope, that moment could turn your equity into something significant. But the tax implications and timing decisions are complex—and worth understanding well before any public offering happens.

Let's walk through what employees should consider when evaluating their options.

Meet Taylor: a Netskope employee weighing her choices

To illustrate the key considerations, let's look at a hypothetical scenario. Taylor is a Senior Engineer at Netskope, living in San Francisco. She earns $250,000 in salary and joined the company in 2020, receiving 35,000 Incentive Stock Options (ISOs) at a $2.41 strike price. Today, those shares are fully vested. The company's current 409A valuation is $17.01/share, with a latest preferred price of $20.45/share.

Now Taylor faces a decision that many Netskope employees might be considering: exercise now or wait until the IPO?

The exercise prior to IPO scenario: Pros and cons

What it means: Taylor exercises her options now, paying the strike price and holding the shares through the IPO.

This strategy is fundamentally about managing the timing and amount of your Alternative Minimum Tax (AMT) exposure. The key difference isn't the final tax rate—with proper planning, both strategies can achieve long-term capital gains treatment. Instead, it's about when and how much AMT you pay.

If Taylor exercises today, she pays AMT on the current spread ($17.01 - $2.41 = $14.60 per share). If she waits until IPO, she'd pay AMT on the much larger spread (IPO price - $2.41), assuming she holds for the required period to qualify for long-term capital gains treatment.

Potential advantages:

• Lower AMT exposure: Pay AMT on today's 409A spread ($14.60/share) rather than the larger IPO spread
• AMT credit opportunity: Build up AMT credits to use against future regular tax liability
• Long-term capital gains treatment: If she holds the shares for more than one year after exercise (and two years after grant), all gains qualify for long-term capital gains rates (15-20%)

Potential drawbacks:

• Immediate AMT exposure: She'd owe Alternative Minimum Tax on the spread between strike price ($2.41) and 409A ($17.01)
• Cash flow impact: Requires significant upfront cash for both exercise cost and potential AMT liability
• Market risk: If the IPO doesn't happen or shares decline, she's still on the hook for AMT payments
• Concentration risk: All eggs in one basket until she can diversify post-IPO

Tax considerations for early exercise:

With Taylor's $250,000 salary, California residency, and assuming she's married filing jointly, let's explore how the tax math might work.

Understanding AMT: Every year, taxes are calculated under both the regular tax system and the Alternative Minimum Tax (AMT) system. The greater of the two is what you actually pay in taxes, which for most people is the regular tax.

ISO exercises don't trigger regular income tax, but they do get added to your AMT calculation. This means when you exercise ISOs, the spread between your strike price and the fair market value becomes part of your AMT income.

The key benefit with ISOs is that if you hold onto the shares for a year after exercise and two years are grant date, you can convert all your gains to long-term capital gains rate which is a lower tax rate than ordinary income.

Let’s explore what the math could look like at hypothetical $30, $40, and $50 IPO pricing.

These calculations assume current 2025 tax rates and Taylor’s specific income level. For reference, federal long-term capital gains rates are 15%–20% (plus the 3.8% Net Investment Income Tax where applicable), while ordinary federal income tax rates range from 10%–37%. California state tax rates range from 1%–12.3%, with an additional 1.1% surtax on income above $1 million. Actual results depend on other deductions, income changes, tax law modifications, and AMT credit utilization timing. For Illustrative Purposes Only.

Next, let’s explore the wait-and-exercise scenario

What it means: Taylor waits until the IPO, then exercises and sells simultaneously.

Potential advantages:

• No upfront cash required: Exercise and sale happen simultaneously
• No AMT risk: Ordinary income treatment means no AMT complications
• Liquidity certainty: No risk of being stuck with illiquid shares

Potential drawbacks:

• Higher tax rates: Entire spread taxed as ordinary income (potentially 32-37% federal, plus state)
• No long-term capital gains benefit: Misses opportunity for preferential tax treatment
• Less control over timing: Must execute at IPO pricing and timing

Tax considerations for waiting:

With Taylor's California residency and $250,000 base salary, waiting until IPO creates a significant tax burden:

This calculation assumes all option gains occur in a single tax year. Actual results depend on other income, deductions, and potential tax planning strategies.

Comparing the outcomes for Taylor's situation with $30 IPO price

These projections assume current tax law, the hypothetical IPO price, and successful long-term capital gains treatment. Individual results will vary based on market performance, tax law changes, and personal circumstances.

Beyond the tax math: Other factors to weigh

While tax optimization is important, it's not the only consideration:

Financial readiness:

• Do you have cash available for exercise costs and potential AMT?
• How would this decision affect your emergency fund and other financial goals?
• Are you comfortable with the concentration risk of holding company stock?

Market timing and company outlook:

• How confident are you in Netskope's IPO prospects and timeline?
• What if market conditions change or the IPO gets delayed?
• How do you feel about the current 409A valuation versus expected IPO price?

Personal circumstances:

• What's your current tax bracket and likely future bracket?
• Do you live in a high-tax state?
• Are you planning any major life changes that could affect your tax situation?
• How does this fit with your overall financial plan?

Financing options to consider

For Taylor's situation, early exercise would require significant upfront cash:

• Exercise cost: $84,350 (35,000 shares × $2.41)
• Alternative minimum tax: $169,000

If exercising pre-IPO makes strategic sense but cash flow is a constraint, some employees explore non-recourse financing. This approach lets you exercise without using your own cash, though it comes with its own trade-offs to evaluate:

Potential benefits:

• Preserves personal liquidity and emergency funds
• Enables early exercise timing benefits without the cash burden
• Downside protection if stock underperforms (non-recourse means you're not personally liable)

Key considerations:

• Qualification requirements and terms vary by provider
• You're giving up a portion of upside in exchange for reduced risk and preserved cash flow
• Impact on overall return depends on stock performance and financing terms

For Taylor's situation specifically:

• Financing could cover the strike price and AMT bill
• She'd keep more of her salary available for other financial goals
• The decision depends on her risk tolerance, other financial priorities, and confidence in Netskope's prospects

Making the decision: Questions to ask yourself

Rather than rushing into either approach, consider working through these questions:

1. What's your risk tolerance? Exercising involves more risk but potentially higher rewards.
2. How certain is the IPO timeline? Delays could affect the early exercise strategy significantly.
3. What's your complete financial picture? This decision should fit within your broader financial plan.
4. Have you modeled different scenarios? What if the IPO price is higher or lower than expected?
5. Do you understand the tax implications fully? Consider consulting with a tax professional familiar with equity compensation.

The bottom line

Both early exercise and waiting until IPO have merit—the right choice depends entirely on your individual circumstances, risk tolerance, and financial goals.

The key is understanding your options and their implications before you're under IPO timing pressure. With Netskope's potential IPO on the horizon, the window for early exercise planning is closing fast. The difference between strategies could be $140,000 or more in Taylor's case, making it worth understanding your options now.

Whether you choose early exercise, waiting until IPO, or some combination approach, having a clear plan can help you make the most of your Netskope equity.