Get an Advance from ESO to Exercise Your Stock Options
For people who work in private, venture backed companies, stock options typically represent the most potentially valuable asset they have. Note that key word—potentially. Options in the majority venture backed companies will end up worthless as the simple result of the company failing, whether at seed stage or Series C and later. You might want to exercise loan options with ESO to conserve cash and lower risk while the preserving upside potential you joined the company for.
A Formidable Hurdle
But stock options aren't a sure thing. For every private company that goes public or is sold for a high price, many more are liquidated and the people who own common stock or exercised their options lose 100% of their investment. A very poorly understood problem is that all Preferred Stock owned by venture capitalists is paid off before common stockholders receive even one penny. In the Unicorn Age where companies have raised billions of dollars, this creates a formidable hurdle.
Options: To Exercise or Not to Exercise?
When people change jobs, they typically have at most 90 days to decide if they want to exercise their incentive stock options. For years, there were only 2 choices: exercise and take the risk of losing your investment or do not exercise and lose the options and the possible profits. Moreover, selling the shares will truncate any possibility of future upside and is usually prohibited or impossible for all but the largest shareholders at the most famous startups.
New Option When Changing Jobs
Now there is a choice that allows option holders to obtain upside with minimal risk — obtain a risk-free cash advance from the Employee Stock Option Fund and use that money to exercise your options. You retain title to the stock and ESO does not require any payments against the advance that a regular loan would require. Most importantly, employee stockholders retain the possibility of enjoying future appreciation in value. ESO can also advance funds for potential tax liabilities associated with the stock, such as Alternative Minimum Tax (AMT). Even if you can afford to exercise your options and pay your AMT that results in a significant bet on the company that may not be an inconsequential proportion of your net worth; by leveraging ESO's funding you can diversify your risk by investing in other assets instead, which can result in a safer and larger portfolio than if you merely invested in a single company (see modern portfolio theory for more on this topic).
Get the Cash Needed to Exercise
An advance from ESO to exercise your options can provide you with significant upside with minimal risk. If you'd like to know more about how ESO can help your financial situation, please contact us.