Source: www.secfi.com/learn/2020
The good news is that there are a number of ways to exercise your pre-IPO options, even if you don’t have cash on hand to make this purchase.
The first option is non-recourse financing, which is what Secfi offers. Our company provides financing for employees of companies to purchase their options prior to an IPO. If the company exits, you’ll pay us back the cash advance along with fees at that time. If your company does not IPO, then you don’t pay anything at all. If you’re wondering how this is possible, here’s the deal: We pre-vet the startups that we work with, so we’re able to take on that calculated risk.
Another option is to sell your pre-IPO stocks on the secondary market through a platform like Forge Global (formerly SharesPost) or EquityZen. These platforms will give you a cash inflow to purchase some of your stock options and cover your taxes, but you will have to sacrifice some of your equity in exchange, forfeiting the upside on those shares.
Some employees use other types of loans to fund an exercise — for example, a home equity line of credit (HELOC), personal loan or margin loan. Keep in mind with these options that if your company does not go through with its IPO, your personal assets are on the line. These lending products may also come with high interest rates.
Exercising your options and becoming a shareholder in your company has the potential to be life-changing. But it’s a big decision that deserves a plan — and we’re here to help with that plan. Ask us anything in our chat, and learn more in our Stock Option Starter Guide.