When your company goes public, it can feel like the financial equivalent of winning the lottery. The excitement is real—but so are the risks. If you’re an employee holding stock options or equity, there’s a lot to consider. Avoiding some common mistakes can be the difference between maximizing your wealth and leaving money (or opportunity) on the table.
Here are three mistakes to avoid when your company goes public:
1. Missing the Post-Termination Exercise Window
Here’s a painful reality: If you leave your company, your window to exercise stock options is usually short. Often, it’s just 90 days. Miss that window, and you forfeit your options entirely. That could be a significant financial loss, especially if your stock has appreciated.
Don’t assume you’ll “figure it out” later. Know your vesting schedule, your exercise deadlines, and your financial capacity to act within the timeframe. If you’re considering a job change, this becomes even more critical. Planning ahead can mean the difference between turning options into wealth or watching them expire worthless.
2. Misunderstanding Tax Implications
The tax side of IPOs can be tricky, and mistakes can be expensive. For instance, if you have Incentive Stock Options (ISOs), exercising them could trigger the Alternative Minimum Tax (AMT). That’s a surprise tax bill you don’t want to meet unexpectedly. Even with Restricted Stock Units (RSUs) or Non-Qualified Stock Options (NSOs), the timing of sales can lead to short-term or long-term capital gains taxes, and those rates can vary significantly.
The key is understanding your tax situation before making big moves. Meet with a tax advisor. Run the numbers. Know when and how to exercise or sell shares to minimize your tax burden. Don’t let taxes eat up more of your gains than necessary.
3. Relying Too Heavily on Limit Orders
Limit orders can seem like a smart way to control how much you sell your shares for, but they can also backfire. Setting a limit price that’s too high means you might miss the chance to sell if the stock never reaches that price. On the flip side, setting it too low could mean leaving money on the table. And in a volatile post-IPO market, price swings can happen fast.
Instead of relying exclusively on limit orders, consider a blended approach. Use market orders for a portion of your shares to guarantee execution, and set realistic limit orders for the rest. This strategy helps balance the risk of missing out with the potential of maximizing gains.
Final Thought
An IPO can be life-changing. But it can also be overwhelming if you’re not prepared. Avoiding these common mistakes won’t just protect your wealth—it’ll give you more control over your financial future. And if you’re ever unsure of the best path forward, don’t hesitate to reach out for expert advice. The goal is to turn this moment of opportunity into lasting financial strength.
Because when it comes to your money, playing defense is just as important as playing offense.
