Frederik Mijnhardt is CEO of secfi, an equity planning platform for startup executives and employees.
Discontinued last year a new record for public exits, with more than 844 US companies going public via an initial public offering (IPO), direct listing or through a special purpose acquisition company (SPAC). That’s up 105% from 2020, when 410 similar companies went public, according to PitchBook.
The 20 largest US IPOs generated an estimated $41 billion in pre-tax value for employees holding stock options in those companies.
Record participation in public exits is good news for founders and investors, but what about the employees who have been granted stock options at these companies?
We examined our proprietary data as well as publicly available data filed with the Securities and Exchange Commission to uncover the key trends for late-stage unicorn employees in 2021.
Here is an overview of what we found:
Employees could have paid less tax if they exercised 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 after exit rather than before exit.
- On average, Secfi clients paid $543,254 to exercise their pre-exit stock options in 2021 (roughly double their annual household income), with taxes making up 73% of the cost.
- Employees at companies that went public in 2021 saved an average of nearly $415,000 by exercising before an IPO.
- Pre-exit stock option exercise rates vary widely from company to company, ranging from just 2.4% at the low end to more than 77% at the high end, which could be an indication of employees’ trust in their company.
$11 billion in unnecessary taxes paid in 2021
In 2021, employees of VC-backed US startups that went public paid an estimated $11 billion in additional taxes for waiting to exercise their stock options after exit, according to a SECFI estimate of 172 in the US-based VC-backed public exits.
Employees could have paid less tax if they exercised their stock options before their company went public. This could also have maximized their profits when selling their shares. In 2021, the high exercise cost of stock options remained a major impediment to individuals exercising their stock options early.
Employees paid $11 billion in unnecessary taxes in 2021. Photo credit: secfi
