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January 24, 2022   Entrepreneurs, Start-ups, Small Businesses, FinTech and Alternative Finance, Innovation and Resources, Personal Finance, Research, Venture Funding and Building, Voices   No comments

Do employees pay less taxes by exercising stock options pre-IPO?

Techcrunch | Frederik Mijnhardt | Jan 20, 2022

employee stock options and taxes - Do employees pay less taxes by exercising stock options pre-IPO?Last year set a new record for public exits, with more than 844 U.S. companies going public via an initial public offering (IPO), a direct listing, or through a special purpose acquisition company (SPAC). That’s 105% higher than 2020, which saw 410 similar companies go public, according to PitchBook.

The 20 largest U.S. IPOs generated an estimated $41 billion in pre-tax value for employees who held stock options in those companies.

Record public exit activity is good news for founders and investors, but what about the employees who were granted stock options in those companies?

We dove into our proprietary data as well as publicly available data filed with the U.S. Securities and Exchange Commission to uncover defining trends for employees from late-stage unicorns in 2021.

See:  Derrick Hunter: Entrepreneurs are critical to economic growth and Politicians should recognize it

Here’s an overview of what we found:

Employees could have paid less in taxes by exercising their stock options before their company went public.

  • In 2021, startup employees paid an estimated $11 billion in avoidable taxes by exercising their stock options post-exit, rather than pre-exit.
  • On average, Secfi clients paid $543,254 in 2021 to exercise their pre-exit stock options (roughly double their annual household income), with taxes accounting for 73% of the cost.
  • Employees at companies that went public in 2021 saved nearly $415,000, on average, by exercising before an IPO.
  • Pre-exit stock option exercise rates vary widely from company to company, from as little as 2.4% on the low end to more than 77% on the high end, which could represent an indication of employee confidence in their company.

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NCFA Jan 2018 resize - Do employees pay less taxes by exercising stock options pre-IPO? The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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