Stock options in high-potential private companies can represent a significant source of wealth on a…
For people who work in private, venture-backed companies, stock options may represent the most potentially valuable asset they have. Note that key word–potentially. Stock options aren't a sure thing. For every private company that goes public or is sold for high price, many more are liquidated and the people who own common stock or exercised their options lose 100% of their investment.
When people change jobs, they usually have 90 days to decide if they want to exercise their incentive stock options. For years, there were really only 2 choices: exercise and take the risk of losing your investment or not exercise and lose the options and the possible profits. Now there is a choice that allows you to obtain upside with minimal risk and conserve your cash—obtain an advance from the ESO Fund and use that money to exercise your options. No payments are due unless and until there is a liquidity event involving the company that issued the shares, such as a sale or IPO. At that time, ESO receives an agreed upon payment which will never exceed the value of your stock. As such, ESO is absorbing your financial risk in case the value of the stock collapses.
ESO can also advance funds for potential tax liabilities associated with the stock, such as Alternative Minimum Tax (AMT) or the withholding tax associated with NSOs. Even if you can afford to exercise your options and pay your taxes, by leveraging ESO's funding you can diversify your risk by investing in other assets instead. The combination of equity in your startup company purchased with ESO's help and the assets you invest in directly can represent a safer and larger portfolio than if you merely invested in a single company. 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 at the ESO Fund.