The notification hits your inbox: your company is going public. Suddenly, those stock options and equity grants that felt abstract are about to become very real wealth. For tech professionals, an IPO represents one of the most significant financial opportunities—and challenges—of their careers.
At Woven Capital, we’ve guided numerous clients through IPO liquidity events, and we understand that while the financial windfall is exciting, it can also be overwhelming. The decisions you make in the months surrounding your company’s IPO will impact your financial future for decades to come.
Understanding Your IPO Wealth Opportunity
An IPO transforms your equity compensation from “paper wealth” to liquid assets, but the process isn’t instantaneous or simple. Your wealth realization depends on several factors:
Types of Equity You May Hold:
- Incentive Stock Options (ISOs): Require exercise and may have tax implications
- Non-Qualified Stock Options (NQSOs): Taxed as ordinary income upon exercise
- Restricted Stock Units (RSUs): Automatically convert to shares upon vesting
- Early Exercise Options: May already be held as restricted stock
Lock-Up Periods: Most employees face 90-180-day restrictions on selling shares post-IPO, meaning your wealth remains illiquid initially.
Pre-IPO Preparation: Setting Your Foundation
1. Inventory Your Equity Holdings
Create a comprehensive spreadsheet documenting:
- Type and quantity of each equity grant
- Vesting schedules and dates
- Exercise prices for options
- Tax basis for any exercised shares
Action Item: Request equity statements from your company’s stock administration platform to ensure accuracy.
2. Model Various IPO Scenarios
Don’t assume your company will IPO at the highest rumored valuation. Model wealth outcomes at different price points:
- Conservative Scenario: 25% below expected valuation
- Base Case: Management’s guidance
- Optimistic Scenario: 25% above expectations
This exercise helps set realistic expectations and prevents lifestyle inflation before wealth is realized.
3. Establish Your Liquidity Strategy
Decide what percentage of your holdings you’ll sell at different milestones:
- Immediate post-lock-up: Consider selling enough to diversify concentrated risk
- 6-12 months post-IPO: Additional sales based on stock performance and personal goals
- Long-term holdings: Shares you’re comfortable holding indefinitely
Tax Planning for IPO Windfalls
IPO wealth comes with significant tax implications that require planning:
Incentive Stock Options (ISO) Considerations
Alternative Minimum Tax (AMT): Exercising ISOs can trigger AMT liability even without selling shares. The spread between the exercise price and fair market value becomes an AMT adjustment.
Qualifying vs. Disqualifying Dispositions:
- Hold shares 2+ years from the grant date and 1+ year from exercise for favorable capital gains treatment
- Early sales are taxed as ordinary income on the spread
Strategy: Consider exercising some ISOs in December before IPO to start the holding period clock while the spread is smaller.
Planning for Ordinary Income Recognition
RSU vesting and NQSO exercises create ordinary income recognition, potentially pushing you into higher tax brackets.
Mitigation Strategies:
- Maximize retirement account contributions in IPO year
- Consider charitable giving strategies
- Plan timing of other income recognition events
State Tax Considerations
If you’re considering relocating, understand how different states treat equity compensation:
- Some states tax based on where services were performed
- Others tax based on residence when income is recognized
- Moving for tax purposes requires careful planning and documentation
Post-IPO Wealth Management Strategies
1. Diversification Without Regret
The Concentration Risk Reality: Even after a successful IPO, holding a large portion of wealth in a single stock remains a risky strategy. However, selling company shares can feel like betraying your belief in the company.
Balanced Approach:
- Set diversification targets (e.g., no more than 20% of net worth in company stock)
- Use dollar-cost averaging to sell shares systematically
- Reinvest proceeds into diversified portfolios aligned with your values
2. Liquidity Planning for Different Goals
Short-term Liquidity (1-3 years):
- Emergency fund enhancement
- Home down payment or upgrade
- Debt elimination
Medium-term Goals (3-10 years):
- Children’s education funding
- Investment property purchases
- Starting your own company
Long-term Wealth Building (10+ years):
- Retirement acceleration
- Philanthropic giving
- Generational wealth transfer
3. Tax-Efficient Reinvestment
Tax-Loss Harvesting: Use any investment losses to offset capital gains from stock sales.
Charitable Giving: Consider donating appreciated company stock directly to charity to avoid capital gains tax while receiving full fair market value deductions.
Retirement Account Maximization: Use IPO proceeds to maximize contributions to 401(k), backdoor Roth IRA, and mega backdoor Roth strategies.
Lifestyle Inflation Management
IPO wealth can dramatically change your financial picture, but it shouldn’t dramatically change your spending overnight:
The Three-Bucket Approach
Bucket 1 – Security (40-50%): Emergency fund, debt elimination, insurance, and conservative investments
Bucket 2 – Growth (35-45%): Diversified investment portfolio for long-term wealth building
Bucket 3 – Dreams (5-15%): Home upgrades, travel, charitable giving, or other meaningful spending
Avoiding Common Pitfalls
Golden Handcuffs 2.0: Don’t let newfound wealth trap you in a lifestyle that requires maintaining your current income indefinitely.
Comparison Trap: Your colleague’s IPO outcome may be different from yours—focus on your own financial goals, not external benchmarks.
Decision Paralysis: Having more options doesn’t mean you need to make every decision immediately. Begin with the most important moves and build upon them.
Building Your IPO Action Plan
6-12 Months Pre-IPO
- Complete equity inventory and tax projections
- Establish relationships with tax professionals and financial advisors experienced with IPO events
- Begin stress-testing your lifestyle and spending plans
3-6 Months Pre-IPO
- Finalize tax strategies for the IPO year
- Set up investment accounts for post-IPO diversification
- Plan major life decisions that might be impacted by newfound wealth
IPO Month
- Execute any planned ISO exercises or other pre-IPO strategies
- Prepare emotionally for the volatility of a newly public stock
- Focus on your long-term plan, not daily price movements
Post-IPO (0-6 Months)
- Monitor lock-up period restrictions
- Begin systematic diversification once able to sell
- Implement tax-loss harvesting strategies as appropriate
Post-Lock-Up (6+ Months)
- Execute the diversification plan systematically
- Reassess and adjust long-term financial strategy
- Consider philanthropic giving strategies with appreciated stock
The Emotional Side of Sudden Wealth
IPO wealth can bring unexpected emotional challenges:
Decision Fatigue: Suddenly having many financial options can be overwhelming
Relationship Changes: Wealth can complicate family dynamics and friendships
Identity Shifts: Your relationship with money and work may change
Imposter Syndrome: Feeling like you don’t deserve or can’t manage sudden wealth
Remember that these feelings are normal and temporary. Focus on making thoughtful, values-aligned decisions rather than perfect ones.
Your IPO Success Framework
An IPO liquidity event is not just about managing money—it’s about ensuring your newfound wealth supports the life you want to build. The most successful IPO outcomes happen when:
- Preparation begins early with realistic planning and expectation setting
- Tax strategy is proactive rather than reactive
- Diversification happens systematically to manage risk without regret
- Lifestyle inflation is controlled to preserve long-term wealth
- Values remain central to all financial decisions
At Woven Capital, we believe your IPO windfall should enhance your life without overwhelming it. We help tech professionals navigate these transformative financial events while staying grounded in what matters most to them.
An IPO represents the culmination of years of hard work and risk-taking. With thoughtful planning and strategic execution, it can become the foundation for financial freedom and the ability to make choices based on your values rather than financial necessity.
Ready to prepare for your IPO journey? Let’s build a comprehensive strategy that transforms your equity compensation into lasting wealth and the freedom to live life on your terms.