Dear SaaStr: I’m an Early Employee and Have a Chance to Sell Some of My Startup Shares. Should I?
Goodness. Congratulations on the change for some liquidity. It’s both exciting — and confusing. Marc Benioff sold a huge amount of his Salesforce stock before its run from $2b to $100b+ in market cap. Today, he only owns a few percent of Salesforce. But other top founders have sold almost nothing. Who knows?
A few questions if you do have a chance to sell vested stock:
- Can you afford to lose everything that’s vested? I.e., are you OK fully rolling the dice?
- How much are you OK risking?
Some general thoughts, especially in the run up to an IPO. The IPO window is mostly closed now, but it won’t be forever:
- In general, maybe sell 20% now. You can give up some future gains to lock in some actually liquidity today.
- Taxes are important, and confusing. Paying a ton of taxes now to hold for the future can be awfully risky, especially if the taxes are very high. Don’t put your financial health in jeopardy to pay a ton of taxes now in hopes of selling for a higher price later.
- What if the stock price falls 50%? Are you OK with that? If so, maybe hold the rest. If not, maybe sell off over the next 2 years (see the next point).
- Most VC firms sell off quarterly or so in the 24–30 months after the IPO. And they’ve been doing this a while. And have seen a lot of IPOs. They aren’t that OK if the stock price falls 50%, actually. So this is their general plan. So maybe this should be your default plan.
- Maybe, sell less if you plan to stay an employee and have no tax issues. Options are options, after all. They are designed to give you time. They give you a shot at leveraging power laws without putting any cash up front. That’s special, if you are working at a winner.
- Family first. What is best for your family? Even a relatively modest amount of financial security can be incredibly different than none at all. Even if you want to roll the dice, just double check your thinking here.
(Note: an updated SaaStr Classic answer)