How do people get rich from their employee stock options?
3 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.
If you spend a lot of time in the tech world, you’ll see that a lot of startup employees seem to get “rich” from startup stock options.
Naturally, that raises a few questions:
This article walks through how stock options work, why they can be so valuable, and what you should do if your compensation package includes them. We cover:
Note: Secfi provides equity planning guidance, tools and financing so startup employees can own their stock options with confidence. If you're looking to better understand what you can do with your equity, sign up to our platform here: Get Started
In the past 30 years, technology startups have created tens of thousands of millionaires in Silicon Valley, largely from stock options. A 2016 report estimated that there were more than 76,000 millionaires and billionaires living in the region alone.
That wealth comes from the unusual economics of private companies building software.
Stock options have succeeded because they combine three powerful forces:
When you combine these forces together, you get a unique dynamic where employees are not just earning a salary, but are participating directly in the upside of the company they’re helping build.
The outcome is not guaranteed, and the majority of startups never do successfully reach an exit event, but for those that do succeed, that combination may result in people getting rich from stock options.
The answer is equal parts practical, competitive, and cultural.
First, the practical reason: For cash-strapped early-stage startups, they’ll offer competitive stock option packages to employees to get access to top talent while potentially paying slightly-less-than-industry-average salaries.
Similarly, stock options can help give startups a competitive advantage when they’re creating job offers for top candidates. If all things are equal, candidates will likely take the job offer with the more attractive stock options package.
Finally, stock options are cultural: Silicon Valley is built on a long-standing belief that it exists as a meritocracy, where founders share in the success of their startups with the employees who generated the most value on the path to get there. Technology companies began granting employee stock options in the 1960s, and they’ve become a defining characteristic of the industry since then.
So what is a stock option, and how does it work? In basic terms, a stock option gives you the ability to buy (or earn) shares in your company at a predetermined price and/or a predetermined timeline.
The contract itself is called a stock option agreement, and the details it covers – number of shares, strike price, vesting period, expiration date – determine what your equity is actually worth.
There are three common types of stock options:
Depending on how successful the company eventually becomes, your pre-IPO stock options can end up being worth a lot.
For example, in the year 2000, early Google employees exercised 17.7 million shares at an average price of 30 cents per share, spending around $5.3 million to do so. The company went public in 2004, and closed its first day of trading at $100 per share making those shares exercised just four years before worth $1.77 billion.
Collectively, the Google shares that employees exercised in 2000 are now worth tens of billions of dollars.
Very few technology startups become the next Google, and most stock options that are granted each year eventually end up worthless, because the vast majority of startups fail. Exercising stock options can also carry tax liabilities, depending on what type of shares you’re vesting, and when you decide to exercise.
However, for the small handful of startups that survive, grow, and eventually exit, stock options can represent a life-changing financial opportunity for early employees.
Stock options can be very confusing. And if you don’t do certain things the right way, you can also end up with a significant tax bill.
If your company has granted you stock options, the first step is to understand the key details of your grant:
You’ll also want to track your vesting. Options typically vest over time, for example over four years with a one-year cliff. You only own what has vested, and any unvested options are usually forfeited if you leave the company (and you typically have 90 days to exercise them post-termination. If you don’t exercise before then, you also lose your vested options).
Once you have a clear picture of your grant, the next step is deciding when and whether to exercise. There are a few key things you need to think about:
We have a full guide on everything you need to know about stock options here: The complete guide to exercising employee stock options.
Secfi brings together equity planning tools, one-on-one guidance from licensed equity strategists, and financing solutions to help employees take ownership of their stock options with confidence. We also partner with companies to provide education programs for employees at every stage.
We built Secfi because our founders faced the same challenge many tech employees do today: they wanted to exercise their stock options but didn’t have the cash to do it, and didn’t have the right support to make informed decisions.
Secfi was created to solve that problem. By combining equity planning, wealth advisory, and non-recourse financing, we help employees understand their options, plan effectively, and access the capital they need when it matters.
Here are a few ways tech employees at Coinbase, Databricks and Anthropic use Secfi:
If you’re trying to understand your tax bill, decide how many options to exercise, or figure out when to sell your shares, it can be difficult to know where to start. Most tools only solve part of the problem, which often leaves you jumping between cap table software, tax calculators, and spreadsheets.
With Secfi, everything is brought together in one place. Maeve is designed specifically for equity planning, so instead of stitching together different tools, you can model your full situation in a single platform.
You start by entering your company and equity details, and Maeve uses that information to help you:
Maeve makes it easy to go deeper into your analysis. You can:
Rather than relying on generic assumptions, everything is based on your actual data, so you can make decisions with more clarity and confidence. It combines the flexibility of AI with the reliability of Secfi’s tax calculation engine.
The platform is completely free, and you can sign up right now to get started: Get Started
Even after modeling different scenarios, it can still be difficult to know what the right decision is for you. Equity planning is nuanced, and small choices can have a significant impact.
You might find yourself asking questions like:
This is where our specialized guidance becomes valuable.
With Secfi, you can work with a licensed team of equity strategists and tax specialists who focus exclusively on equity planning. They can help you understand your options, think through trade-offs, and build a plan tailored to your situation.
For more comprehensive support, you can also work with our wealth advisory team. These are certified financial planners with deep experience in capital markets, private equity, and venture capital, helping you align your equity decisions with your broader financial goals.
Secfi operates as a federally registered investment adviser, with transparent, fee-based pricing and no commissions or kickbacks.
Learn more about our advisory here: Access Wealth Support
You might run the numbers and realize that the combined cost of exercising your options and paying the associated taxes is higher than expected. Using your own cash can be risky, especially when you’re converting liquid assets into something illiquid.
This is where a solution like non-recourse financing can help.
Non-recourse financing allows you to access the capital needed to exercise your options and cover taxes without putting your personal assets at risk or making monthly payments. Instead, repayment is tied to a future liquidity event, such as an IPO or acquisition. If the company does not succeed, you are not required to repay it.
For many tech employees, this provides a way to participate in the potential upside of their equity without committing significant personal capital upfront.
You also have the option to sell shares through Secfi’s secondary marketplace. This gives you access to real market data and expert guidance, while Secfi handles the complexity, including legal documentation, buyer negotiations, and tax considerations.
Learn more here: Get financing for your pre-IPO options and shares
Dan Sinner, Chief Customer Officer at Happy Money, wanted to exercise his stock options. But after running the numbers, he realized the total cost, including taxes, was too high to comfortably pay out of pocket. At the time, he had just gotten married and was preparing to buy a house, so tying up a large amount of cash in illiquid shares did not feel like the right move.
That’s when he turned to Secfi.
The team helped him understand his equity in detail and explore his options. With Secfi’s support, he was able to finance the cost of exercising his shares while building a plan designed to maximize his long-term upside.
The experience was so impactful that Dan decided to bring Secfi to the rest of his company. He rolled out Secfi’s platform to Happy Money employees, giving them access to both education and financing options.
For Dan, it was not just about solving his own situation. It was about making sure others had the same opportunity.
As he put it, “What I found most comforting was that this would allow all our employees, not just the executives or senior ones, to have the option to make a major life decision.” It helped ensure that employees would not feel like “this thing I worked so hard for… is going to go away” because they could not afford to exercise.
Today, Happy Money employees have access to financing if they choose to use it, giving them a clearer path to participate in the potential upside of their equity.
Read the full story here: Why a Happy Money executive introduced Secfi to the whole company
Testimonials are specific to an individual Client’s experience and may not be representative of all Clients. Unless otherwise indicated, Clients offering a Testimonial do not receive compensation and their statement does not present a conflict of interest.
As we’ve explored in this article, stock options can be a powerful way for employees to build wealth. They give you the opportunity to benefit from the success of the company you are helping to build, while also aligning your incentives with the company’s growth.
At the same time, they can quickly become complex. Factors like the type of equity you hold, AMT, and your broader financial goals all play a role in determining the best path forward.
That’s where the right support makes a difference. With the right planning, tools, and access to financing, you can approach your equity with more clarity and confidence.
If you want to learn more about how Secfi can help, reach out here: Get Started
Yes, but it depends on the company’s success and your timing. Stock options can become highly valuable if the company grows significantly and has a liquidity event like an IPO or acquisition. However, most startups do not reach that stage, so while the upside can be large, it is not guaranteed.
Stock options give you the right to buy shares at a fixed price, known as the strike price. If the company’s value increases, you can buy shares at that lower exercise price and potentially sell them later at a higher value. The difference between those two prices is your potential profit.
There is no one-size-fits-all answer. The best timing depends on factors like your company’s stage, your financial situation, and tax considerations. Exercising early can help reduce taxes but increases risk, while waiting can reduce risk but may lead to higher taxes.
The main risks are that the company may never have a liquidity event, your shares may end up worthless, or you may face a large tax bill without being able to sell your shares. Poor timing or lack of planning can also reduce your potential upside.
You have a few options. You can exercise fewer shares, wait, or explore financing solutions like non-recourse financing, which allows you to cover the cost of exercising and taxes without using your own cash. Planning ahead can help you find the approach that works best for your situation.
The tool shown here uses artificial intelligence and is for illustrative purposes only and not necessarily indicative of future results and there is no guarantee that similar results can be achieved. The information provided by the tool is not professional advice and is not intended by Secfi, Inc., its affiliates, and Secfi representatives, to be deemed as investment, legal, tax or other professional advice or recommendations of any kind, or to form the basis of any decision to do or to refrain from doing anything. Secfi does not review the accuracy or completeness of the information provided to us within the tool.