You want to exercise your stock options but the cost and taxes are
Non-recourse financing can help.
Exercising your stock options with your own money is risky and, in some cases, prohibitively expensive. When you consider the potential AMT (Alternative Minimum Tax) that comes along with exercising, you may find yourself without enough money.
Instead of using your own capital to exercise your options, there are several firms who will lend you money risk-free (known as non-recourse financing) to exercise your options. Instead of having you pay back this financing over time like a mortgage or automobile loan, these firms take a cut of your upside when the company goes public. And if your company fails along the way, you owe nothing.
Sounds great, doesn't it? The difficult question is "how do I get non-recourse financing for my stock options?". That's where we come in.
Vested helps you navigate the world of non-recourse financing. There are plenty investors looking to offer this type of financing, but it can be difficult to find them.
Instead of financing and exercising your options, you may be able to sell your shares today to lock in some immediate gains.Learn More
We estimate that there is over $1 billion of capital looking to provide financing to option holders at US backed startups.
Companies are staying private longer and some don't allow secondary sales, so outside investors have to find creative ways in order to invest. By offering you non-recourse financing, the investor is essentially investing in your company. It's really quite creative (and beneficial to the employee).
Many of these investors offer non-recourse financing, which means you do not have any risk if the company goes out of business. However, with less risk comes a higher cost: you end up giving away more of your upside.
Other types of financing are structured more like mortgages where you're on the hook for the loan principle and interest, but you keep your entire upside. This type of financing has a much higher risk to you.
Picking the right financing type can be hard. And finding financing providers can be even more difficult.
This type of financing has zero downside risk to you because you are giving up a significant portion of your upside. If the company does well, you owe the principal back, plus ~30% of the profit.
You should consider how you'd feel if your company goes public, and you walk away with a smaller payout.
That's really up to you. Some folks are in a bind and have 90-days remaining before their stock options expire. Getting non-recourse (risk-free) financing and giving up a sizeable piece of the upside is a no brainer: getting some upside is better than getting no upside.
On the other hand, getting a mortgage-style loan is more risky. This is similar to exercising with your own money, except you owe interest as well. In some cases, this is beneficial to the employee, as they get to keep their full upside.
There is often only a short timeframe where investors have is interest in offering financing for private company stock options. When the opportunity arises, you should be equipped with the tools to make the best decision.
With Vested, we can connect you with the best-in-class financing providers so you can assess all of your options.