Conserve Your Cash when Exercising Employee Stock Options


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. You might want to exercise loan options with ESO to conserve cash while preserving upside potential.

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 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 most famous startups.

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New Option When Changing Jobs

Now there is a choice that allows option holders to obtain upside with minimal risk — obtain a 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; 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).

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.

This innovative service promotes and enables a healthier relationship between companies and employees. I my opinion it's valuable to employees and great for the overall tech environment and economy. It is good for nobody when employees feel trapped because they can't afford to leave. In less extreme cases exercising can be expensive and somewhat risky and this is simply a good smart hedge and a good square deal. Brilliant!

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