We are experts at helping private stock and option holders navigate an uncertain market.

We have built a sustainable, ethical model for financing pre-IPO share and stock option transactions.

  • We are a genuine partner who is risk-aligned with our clients.
  • We help clients source the liquidity they need today without sacrificing their upside tomorrow.
  • We work with every private option holder to minimize risk asymmetries and capital gains implications.

Private Secondaries: Beating the Market with a Superior Alternative

Like most aspects of 2020, the IPO market has run an absolute gamut of extremes. The same can be said for private secondaries, which essentially froze for an extended period during the early pandemic months only to subsequently heat up as IPO aspirants continue to ride the market’s historic and seemingly (at times) insatiable appetite for public filings and announcements. Private shares in a wide variety of pre-IPO companies have gained even more attention, and upside, as a result.

But for startup employees granted shares as part of their equity compensation, these trends can be vexing. On one hand, in a year of uncertainties, many shareholders may want to sell their shares to invest in real assets, reposition themselves professionally, retire, relocate—or some combination of all of these. As the markets intensify, they may even be tempted by much stronger secondary liquidity and offers than in the past, with new funds, players and platforms seeking out buying opportunities, often very aggressively.

On the other hand, shareholders see IPO values shooting through the roof, with market capitalization increasing by orders of magnitude upon initial public trading only to stabilize or even substantially pull back in the months afterward. So, what to do?

The Timing is All

Many people sitting on significant pre-wealth shares are now asking how to make these timings line up. They are right to be skeptical of a tender offer that seems too good to be true. The fact is, even the world’s most sophisticated investors approach the private markets—with its unpredictability, natural information deficit and uneven liquidity—with care. So should shareholders. And this is particularly so for those whose companies are still two or three years or more out from a listing. If 2020 has taught anything, it’s that even a few months can feel like a lifetime. These days, a lifetime’s worth of tumult can come to company shares on private markets even faster. You need a more efficient and predictable alternative. One that you can trust.

Indeed, we designed the Liquid Stock solution with this kind of market environment and volatility in mind—as a better way forward. Unlike many private secondaries platforms, we understand the complexities shareholders face, and the duress they’re often under as they assess their options. We also find that most folks believe in their company’s ability (and its share value’s ability) to grow; that’s why they signed up as early employees or investors, in the first place—even before the ardent market fervor seen today. With that in mind, we created a solution that provides clients liquidity now without stunting that growth, by reducing the downside risk incumbent in walking away from your shares entirely (or worse still, being pressured to do so by a now-or-never ‘exploding’ offer).

A Deft Hand

Liquid Stock is a superior choice because our solution isn’t designed to grab quick margin on high volume; instead we are selective, and become genuine partners in engagements that make us risk-aligned with our clients. We’ve seen decades of experience in the VC and private markets, both ups and downs, and we know what makes a sustainable and ethical model for financing pre-IPO share transactions. It’s the reason that many groups of employees—and company CFOs—are coming to us more and more as we approach 2021: if they’re going to unlock share sales at a company level, they want to do it equitably, the right way and with a deft hand as a partner.

We’re the first to say it: for some shareholders out there, now may well be the best time to sell. Every company situation and personal need is different. But have your adviser do the math. For those whose futures look bright, with IPOs reaching evermore impressive heights, it’s increasingly hard to argue for a private tender. There are simply far better alternatives to source the liquidity you need today—like ours—while maintaining the upside for tomorrow.

Stock Option Exercise: Personal Wealth Transformation, Done Right

In the universe of pre-IPO equity compensation, if private shares are still the wild west, options on those shares are more like Mad Max: Fury Road. For many options holders, it’s a bouncy clunky ride full of craziness and potential hazards. But it doesn’t have to be.

At Liquid Stock, we are often asked about tips and advice in this area. Many employees look at their options as something theoretical and complicated, even as an ornamental feature of their compensation—but one to be handled well down the line, in part because financing an exercise brings with it costs. So the first issue to solve lies in understanding that all of these reasons to delay are, well, fiction. 

Among all of your compensation components, your options may well be the most valuable. Yet, paradoxically, they are worth nothing to you unless you get educated and exercise at the right time. And, for a number of reasons, that time is usually well before the deadline to do so—and even further before your company contemplates a public offering and locks them up.

The Tax Man Cometh

The biggest reason has to do with tax. Every state will treat the capital gains incumbent in options exercise differently, but as a general matter, these levies can range from nontrivial to incredibly significant—and typically rely on 409A valuation information at the time you exercise. So, indeed, it is typically far more advantageous for an options holder to lock in this value sooner, when the value is low, than after the company has matured or is awaiting an IPO. For some, the arbitrage here can amount to millions of dollars.

The trickiness is this: the tax bill often arrives far earlier than a potential liquidity event, which may be several years away; thus liquidity providers step in with solutions to bridge that gap. Unfortunately, some of these—to return to Mad Max—seem more like pirates scrounging in a desert than partners. So this becomes another crucial aspect of option exercise education. Ask the questions: if you’re working with a loan provider for your financing, does the contract pay out only once a liquidity event is triggered, or before? Are you forced to sell the resulting shares as part of the transaction? And will your provider work with you in the event the company—and therefore its share value—takes a bad turn?

The fact is, sadly, that many options holders don’t have those answers if they’re in a tight spot ahead of a deadline or lockup period, and desperate for a financing partner. They may not realize that the partner’s real goal is to get hold of your shares for pennies on the dollar. And they typically don’t realize that the loan will also count as ordinary income if the shares go bust, essentially generating a double tax liability along with the capital gains—while payment on the loan is still due. It can get dark and dirty very quickly.

Trust the Process

At Liquid Stock we’ve taken serious steps to ensure that these risk asymmetries are minimized. We know that options holders are already taking on enough big questions as they decide what to do and when. We aim to provide transparency to every potential client about the liquidity we can offer, how their deal is structured, the capital gains implications, and the ways our solutions can protect against the downside—most of all, by assuring that the instrument in question is not a loan. We see ourselves as a partner, not merely a service provider, and the terms of our engagements can last several years as a result.

We can do this because, with better data and more trust in our process, our model allows us to be patient. We’ve really aimed to civilize this increasingly important type of liquidity financing, bringing the robust due diligence and standards typically reserved for regulated markets to what remain very complex, private—but also personally transformative—transactions.