When your company is still private, deciding what to do with your equity isn't always straightforward. If you're sitting on vested options, you typically have two paths: sell or exercise.

That said, selling isn’t always an option, it usually requires company approval and only becomes available during specific events like tender offers or company-approved secondary sales. Exercising, on the other hand, is typically up to you. If you've already exercised or own common stock, your decision may be whether to sell or hold.

Each route comes with tradeoffs, from taxes to risk to potential future upside. Here's what you need to know to decide what's right for you.

Selling Your Options or Shares

Selling your equity, whether unexercised options or already-owned shares, before an IPO can provide real liquidity, but it's not always easy or ideal.

Pros of Selling Pre-IPO Stock:

• Access cash now
• Eliminate future risk
• Simplify taxes (in some cases)

Cons of Selling Pre-IPO Stock:

• Requires company approval
• Often involves a steep discount
• You give up all future upside

Most private company sales fall under two categories:

• Tender Offers: Company-led opportunities to sell, usually time-limited and with set terms.
• Secondary Sales: One-off sales to approved buyers, if the company allows it.

Learn more: How to sell pre-IPO shares

Exercising and Holding

Instead of selling, you can choose to exercise your options and hold the shares, or simply hold if you’ve already exercised. This gives you continued exposure to future upside and starts the clock for long-term capital gains.

Benefits of Exercising Stock Options and Holding Shares:

• Retain potential upside
• Begin long-term capital gains timeline
• More flexibility in future liquidity events

Drawbacks of Exercising Private Company Options:

• High upfront cost
• Possible AMT liability
• Risk of losing money if the company doesn't exit successfully

This option is especially appealing if you believe in your company and want to maximize long-term gains.

What If You Can’t Afford to Exercise?

Exercising can be expensive, especially when factoring in taxes. That’s where ESO Fund can help. We provide non-recourse financing to cover your exercise and taxes so you can hold your shares without risking personal capital.

We also support partial liquidity if you want to take some chips off the table without selling your entire position.

If you're not sure what path is best, we’re happy to walk through your options and provide a proposal based on your goals and timeline.

Written by Jordan Long, Marketing Lead at ESO Fund