Post-IPO: Key Decisions
Post-IPO: More Wealth, More Decisions, More Complexity
At every stage of a company (Pre-IPO; Liquidity Event; Post-IPO), there are at least a couple of important decisions you need to consider and make regarding your equity compensation. But post-IPO (and especially if you were with the company pre-IPO), there is an increased number of decisions you need to consider/make:
Concentration risk is frequently heightened (stock value increase)
Overall wealth is frequently much higher (more need for planning, and more planning options)
Liquidity exists to sell shares (requires a divestment/selling plan)
More tax optimization opportunities exist (for more details see 50+ tax strategies)
New equity compensation plans may arise (ESPPs), new strategies may present (10b5-1 Plans), and new restrictions also arise (lockups; black-out periods)
You Have Two Key Decisions to Make (Or Plans to Create)
When your company is publicly traded, especially if you were with the company pre-IPO, there are primarily two key decisions/focus vectors:
(1) How much stock do you want to sell; when; and with what rules? Your vested and unvested equity likely represents a large percentage of net worth concentrated in one asset. It is important to develop a systematic plan for managing your risk, which will emphasize diversification and the creation of a selling/divestment plan.
We provide detailed, step-by-step instructions on creating a selling plan on a separate page: Divestment/Sale Planning
(2) How can you best optimize for tax? Post-IPO, there are more tools available for tax management. Like always, tax optimization should be a tertiary focus (behind financial plan/goals and investment risk), but smart tax management frequently increase your after-tax wealth by 3-8%, and sometimes more than 25%.
More than 50 tax strategies exist for stock-based compensation. We cover each in far more depth in a dedicated section of this site: 50+ Tax Strategies
Public Companies Have New Restrictions; New Opportunities
[Selling Restriction] Post-IPO lockup. After going public, most companies implement a "lockup period," which restricts management, employees, and VC-investors from selling any of their stock for a period of time post-IPO (most frequently 180 days).
[Selling Restriction] Blackout windows. To help prevent against insider trading, nearly all companies implement a blackout window each quarter (typically starting 0-15 days prior to the fiscal quarter end, and ending 2-4 days after earnings are publicly reported).
[New Opportunity] Employee stock purchase plan (ESPP). It's common for companies to launch an ESPP once they become publicly traded. In many cases, an ESPP can provides one of the most attractive risk-reward ways to invest.
[New Opportunity] 10b5-1 plan. For a variety of reasons, most publicly traded companies offer/support 10b5-1 plans (at least for senior management). These plans can make the implementation of your selling plan significant easier.
[New Opportunity] derivative contracts for hedging (e.g. Call and Put Options). If you are an ex-employee, but still have a large amount of stock in your former employer, Call and Put options may be available for you to trade to help hedge/manage your risk. For more info see Hedge Your Stock
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