Hiive vs ESO Fund: Which is Right for You?

Considering Selling Your Shares? Here’s How Hiive and ESO Fund Compare

The Basics: What Hiive Offers

Hiive operates as a secondary marketplace, allowing startup employees and investors to sell shares pre-IPO. This provides liquidity but may come with pricing below your ideal value due to limited buyers, fees, and other costs. Sales are often subject to buyer demand, which can delay transactions. Additionally Hiive charges a broker fee, which is typically 3-5%.

Hiive is a good choice for employees seeking immediate cash and willing to sacrifice future upside or who doubt further stock appreciation.

ESO Fund, on the other hand, is ideal for those who believe in their company’s long-term growth and want to benefit from a future IPO or acquisition. This option is particularly helpful for employees in their 90-day post-departure exercise window.

ESO Fund's Alternative: Go Long, Without Risk

ESO Fund offers a unique approach to exercising stock options. Rather than selling shares outright, you can leverage ESO Fund’s option exercise funding and retain upside potential. We fund the exercise of your options risk-free, allowing you to avoid early sale discounts and still participate in your company’s growth.

Key Differences: Flexibility, Risk, and Potential Upside

Pros and Cons of Secondary Sales on Hiive

Pros:

• Liquidity Today: Exit events can take years, while life events can’t wait. Selling on the secondary market lets you turn your on-paper gains into cash today.
• Trusted Marketplace: Hiive is a leading platform in the private secondary market, making it easy to find buyers and manage the necessary documentation. Many ESO Fund clients use Hiive for liquidity.

Cons:

• No Upside: Many people are drawn to startups by the potential for significant returns on their equity. This can be realized through a pre-IPO sale, but selling your shares early means forfeiting the chance to make larger profits if the company exits at a higher price. Essentially, the buyer is willing to pay the current price because they believe they can sell at an even higher price in the future.
• Company Approval: Many companies will block the transfer of shares, so unless the buyer is connected at the company or willing to do a Forward Purchase, the sale may not be able to go through. If they are willing to do a forward, it often comes with a discounted price.
• Taxes: If you already qualify for Long-Term Capital Gains (LTCG), this is less of an issue. However, anyone planning to exercise and immediately sell via secondary will be subject to Ordinary Income taxes. By exercising and holding the shares for more than a year, you can benefit from the lower LTCG rate.
• Minimums: Hiive has a $25,000 minimum transaction size, which may restrict smaller shareholders from selling on their platform.

Pros and Cons of Funding Your Exercise with ESO Fund

Pros:

• Risk-Free: The ESO Fund covers 100% of your exercise costs, including taxes. If the company doesn't succeed, ESO will absorb the loss.
• Ownership & Upside: Your shares remain in your name, allowing you to retain your upside potential. As your company grows in value, so does your equity.
• Quick and Easy Process: ESO's process can be completed in as little as 24 hours and doesn't require finding a counterparty, as ESO funds the exercise directly.
• No Minimums: ESO has no minimum transaction size, so equity grants of all sizes are welcome.

Cons:

• No 100% Sales: ESO does not provide the option to fully liquidate your equity.
• Potential for No Return: Many companies never make it to the finish line, so you might not see any financial return from your investment. The good news is that ESO will absorb 100% of the loss.

When to Choose Hiive vs ESO Fund

Choose Hiive if:

• Immediate cash is needed and you’re ready to sell shares.
• You’re comfortable with the sale price and any potential fees.

Choose ESO Fund if:

• You want long-term ownership potential without spending upfront cash.
• You’re willing to wait for an IPO or acquisition to maximize returns.

Takeaway

If you’re looking to sell your shares quickly, Hiive can provide immediate liquidity, though at a potential cost to long-term value. With ESO Fund, you keep your shares and avoid the upfront costs of exercising, while holding out for a future liquidity event.

To learn more about ESO's option exercise funding solutions, please fill out our contact form below.