Get the cash you need to own your Betterment options
5 min
San Francisco native (yes, really). @uw and Lowell High alum. I like to nerd out on fintech, stock options and taxes.
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San Francisco native (yes, really). @uw and Lowell High alum. I like to nerd out on fintech, stock options and taxes.
As an early stage employee at Betterment, you hold exclusive access to private stock in a pre-IPO company. With our non-recourse financing, we’re able to offer you liquidity for your shares or option exercise while still retaining the shares in your name.
Non-recourse financing is a type of financing arrangement in which your repayment is tied to your Betterment shares. This means that if Betterment never goes through an exit or liquidity event, you are not required to pay back the amount. This makes non-recourse financing a valuable option to exercise your options or obtain liquidity for your shares without putting your personal assets at risk.
Several factors come into play when considering non-recourse financing:
The most critical factor in non-recourse financing is the value of your shares. The value and quality of Betterment shares play a significant role in determining the terms of the financing.
Our investment team has performed thorough due diligence to assess Betterment to determine the value and risk of the shares.
Non-recourse financing terms may vary depending on the risk or exit timeline for Betterment. Secfi’s non-recourse financing structure typically includes a time based fee, similar to an interest rate, as well as a portion of the value of the equity if the company has a successful exit.
You are looking to obtain some liquidity or cash today for a purchase or just diversification purposes. The financing can be an appealing alternative to outright selling your shares as you retain the upside in the shares.
You are looking for a way to exercise your stock options due to a deadline or to save on taxes without putting your own cash at risk. You may want to get ahead of any potential increase in exercise tax costs and start the clock on long-term capital gains. There are a lot of potential tax savings if the company has a successful exit.
You want to minimize your risk. Diversification is generally always a good idea and putting your savings into one stock can be a risky endeavor. You only pay back the financing if your company goes through an exit, such as an IPO.
Secfi’s financing structure is company friendly and does not require a transfer of ownership of shares. The shares will remain in your name and there are no payments due until an exit event. Upon an exit event (IPO, acquisition, etc.), you would settle your contract by paying back the advance and fees. Secfi’s structure does not require you to deliver shares.
As an employee of Betterment, you hold exclusive access to a piece of the pie. If you’ve ever wanted to be a part of a members-only club, well congratulations, you made it. No big surprise here, but a lot of others want to work their way into that club as well.
The beauty of non-recourse financing transactions is that everyone involved has the same end goal: a strong exit event. The success of the collateral Betterment shares is mutually beneficial. If Betterment has a successful IPO and share price, both you and the financing provider benefit from the appreciation in share price.
Until Betterment has an exit event, your agreement remains outstanding. Some structures may differ, but with Secfi’s structure, you’re never required to pay back any portion of your contract until the shares are liquid and freely tradable. This provides you downside protection, which typically never exists in a private company stock. Only the shares used are backing the transaction so there’s no liability to you or your family's personal assets.
When there is an exit event, say Betterment IPO, which we’re all aiming towards - it comes time to settle your contract. There’s three financial values that come into play to make up your maximum settlement amount:
At settlement, you pay the lesser of the value of your shares or the maximum settlement amount. Ie. If your shares are worth less than the amount owed, you deliver the shares and walk away. If they’re worth more, you deliver the settlement amount and your shares are unrestricted. At that point, you’re free to hold onto them for capital appreciation or to sell for some liquidity & diversification.
It’s also worth noting that there may be certain tax liabilities or benefits from a non-recourse financing. With Secfi’s structure, any fees may be taken as a capital loss on your tax return which means a benefit. On the flip side, you may have a capital gain if you do not pay back the financing amount. The non-recourse financing provider should provide more information on this, and we always recommend speaking to a tax advisor.
Betterment is eligible for financing!
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