When Amanda joined a fast-growing unicorn software company, she said she had “no idea what equity was when I accepted my offer.” Some of her coworkers would frequently talk about equity, which opened her up to wanting to learn more. But it wasn’t until the company gave her a choice about her stock options that she really decided to educate herself and make a plan.
She realized that equity was something she needed to take seriously
The company gave every employee that had been there for at least 3 years the option of converting their incentive stock options (ISOs) to non-qualified stock options (NSOs). By doing so, employees wouldn’t lose their options if they left the company, which seemed like a good idea.
“I remember being in a meeting and they were explaining equity — it was very surface-level — and why converting to NSOs could be a good idea,” she said. “And a lot of the people sitting around me were like, ‘well, obviously I’m going to sign this, this makes sense.’” But Amanda wasn’t so sure. “I kept using their calculations to see how much money I would lose by doing it, and it just didn’t make sense to me.” That’s because, while she may be able to hold onto NSOs longer if she left the company, or lost her job, they’re taxed less favorably than ISOs.
While she appreciated the offer from her company, and the resources they provided, it wasn’t a full training on equity. It was more a “very high, surface level” introduction to equity. But she also understood that her company couldn’t legally offer her financial advice (no startup is legally allowed to give their employees financial advice). Plus, deciding what to do with her equity was a personal decision. She wasn’t sure where else she could turn — except Google.
Learning more about her stock options wasn’t so simple
“That meeting set me off on this little bit of a panic,” she said. “So I did a Google search and a lot of reading, and a lot of trying to understand tax implications.” What she discovered was that stock options were complicated. And potentially expensive due to taxes. But before she arrived at a decision of what to do with her stock options, she wanted more information. Would she owe taxes? And, if so, how much?
Suddenly, she was learning about capital gains tax and the alternative minimum tax (AMT), and realizing that it was much more complicated than she realized. Still, she wanted to make the best decision possible to get the most value out of her equity.
She knew if she made the right decisions, “it meant building wealth for me and the family I’m building.” She also knew that equity, itself, was a risk because it “meant putting in money somewhere that I wasn’t going to see a return for potentially a long time, maybe not ever.”
She wanted to own her equity but didn’t want to risk her life savings
Amanda and her husband only saw two options: Get a bank loan or hope that she was still at the same startup when it went public. The first option scared her because “it would change our debt-to-income ratio,” she said, which could create a challenge for future financial decisions, like buying a house. Plus, she wasn’t even sure she could get a loan for the amount of money she needed to exercise her options.
The second approach seemed safer, but she also worried that if her job security was ever in jeopardy, she’d lose her equity. And it meant taking away any control she had over making a decision, both with her stock options and in her career.
Luckily, she found a third option.
Secfi gave her the knowledge she wanted and the low-risk financing she needed to exercise
Eventually, one co-worker told her about Secfi and recommended she reach out. When she did, she connected with Vieje Piauwasdy, Secfi’s Director of Equity Strategy. He was “the friendliest person I talked to, with a lot of information,” Amanda said. “And gave, I thought, the fairest offer and the best resource in my journey. And that’s what I was really looking for.”
She started to understand the tax implications of exercising and that, with ISOs, she could pay less alternative minimum tax (AMT) by exercising earlier. “I exercised for the AMT benefit,” she said. But everyone kept telling her “AMT is this mystical thing, you might have to pay it if you meet these things, but you probably don't.”
“Secfi was one of the only websites I could find that could give me accurate calculations of AMT”, she said. It was that access to knowledge and resources like Secfi’s tax calculator that initially made her trust Secfi.
For Amanda, risk — or more specifically the absence of risk — was a big factor in her decision to choose Secfi’s financing option. She was the first in her family to graduate high school, “let alone end up at a startup, getting equity,” she said. That’s why “the non-recourse option was really important.” She didn’t want to risk losing the value of her stock options, but she also didn’t want to risk her own financial situation to own them.
“Knowing that I don’t really have a safety net myself,” she said, financing the cost just made sense. Especially since Secfi’s financing option means she doesn’t owe anything until the company goes public and, if for some reason they never do, she’ll never owe anything. “That was one of the most important factors for me in making a decision,” she added.
Sign up for free to get full access to our tools and see how much it could cost to exercise your options. If exercising your options creates a tax bill you can’t afford, Secfi can help cover the costs. Learn more here.
This testimonial is not meant to be used as investment advice. The testimonial may not be representative of the experience of other customers and there is no guarantee of future performance or success.