Employees of venture-backed startups are tied to the illiquidity of their stock positions. As timelines to exit have consistently lengthened, employees have begun looking for liquidity alternatives such as secondary market sales to enable them to cash out early without having to wait for an IPO or M&A exit.
However, selling early is not the only alternative, and it may not be the best way to maximize the value of your equity holdings. While selling early provides near-term cash, it forever limits your future upside potential because once the stock is sold, there is no additional upside to be gained by the seller. It also requires dealing with transfer restrictions that companies place on such transactions. While companies can waive transfer restrictions, the point is that they must be dealt with somehow in a typical sale.
By contrast, a transaction with ESO can be structured to not trigger company transfer restrictions and also let you retain equity upside should the company have a positive liquidity event.
The ESO Fund provides financing for option exercises and for liquidity based on issued shares. 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, the owner of the stock and ESO share the upside of the liquidity event and ESO is repaid.
ESO's program is an attractive alternative to direct stock sales, and can serve to maximize the value of stock ownership in venture-backed startups in a tax efficient manner. Please contact us if you would like to learn more about how the ESO Fund can help you.
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Employee Stock Option Fund
999 Baker Way Suite 400
San Mateo, CA 94404
tel: +1 (650) 262-6670