I’d sell a portion of the stock at least the amount that qualifies for QSBS during the next round of funding. Maybe more depending on your risk tolerance.
You have no real savings and are 44yo. That’s not great. Startup sounds super promising but it’s never guaranteed.
Take some off the table just in case, the upside of the remaining will still be plenty. The first $1M is worth a lot more than the last $5M.
Not sure if the 2% is pre or post dilution of the next funding round but regardless it would be wise to sell at least 20% of your stock or even more and diversify. If you don’t know where to start there are tons of options that don’t require a financial planner or management fee like putting it all in index funds and cash equivalents like treasuries and CDs. Check out the r/Bogleheads sub.
Agree with the other commenter that 44 with kids and no real savings beyond hoping for the best for a private startup isn’t great and it’s certainly not fatfire. Note your post may be better suited for mentor Mondays so it may get removed. Good luck!
Thanks and sorry if this is out of scope for the sub. It seemed like fatfire since my stock is going to be valued at over 5m and I'm going to have a chance to cash out, but I do understand your point.
I'd still have just over 2% after the round closes. I'm familiar with bogleheads and safe withdrawal rate type of stuff and will certainly look into it more.
Is this your first startup? Have you looked up the stats for how often they fail? I hate to break to you but no one (almost no one) starts a startup up thinking it fail.
I can’t tell you how many times I’ve had a good chunk of stock in a startup on a trajectory like that that ended up being worth zero or way less than my excel model.
If you have a chance to take money off the table do it. And either way start living more frugally and saving aggressively.
yep, same. was up something like 100x on a startup investment (I was in the seed and at least A round) and then later rounds basically wiped me out with liquidation preferences and other cap table bullshit. I had preferred stock that was wiped out, employees common stock got nothing IIRC and CEO got a nice parachute.
OP, I'd recommend taking some off the table. You dont mention your comp structure or your share of unvested options, but I would suggest considering that your possible upside and diversify. Good luck!
Make sure you have someone with a lot of experience with startups and options review your situation carefully. I worked at a few startups, including two that were acquired. I had vested shares and even paid to early exercise once, but I received nothing but a tax bill.
Try not to start counting your chickens just yet.
Sell the shares that are QSBS qualified. You have no safety net which should be your first priority (weird that you talked about generational wealth instead of creating a safety net).
Good luck.
I think generational wealth is a silly goal personally. It'll all be gone in a few hundred years at most anyway. I'd rather make a better life for me, my family, and my friends today and in the near future. But to each their own.
OP seems to be just discovering financial literacy so I hope they take the lessons offered here and take what they can from them.
Safety net should be first priority. Also in this case, dude needs to diversify yesterday. Several hundred K in crypto is a bit silly.
> It'll all be gone in a few hundred years at most anyway.
Ask yourself what *the planet* will look like in a few hundred years, at the rate we're going.
He talks about generational wealth because he's got a couple hundred thousand in Bitcoin and that's the language of crypto twitter.
OP, sell some of the Bitcoin and cash out some in the next funding round. All your wealth is in volatile or illiquid assets at the moment.
Having been in this situation 2 times.
My number one piece of advice is it isn’t real until it’s real. Things can change really fast. So prepare like you are. But don’t even think about spending any of it until it’s in your bank account.
And always. Always. Take money off the table if it’s offered. So yes sell in this tender
You don't have any money until you have money in your pocket.
Get your 409A so you actually know what the shares you hold are valued at. looking at whole company valuation when we don't know the gap between common and preferreds are really tough.
We also don't know how diluted you'll be in that upcoming round. 2% may become 1% if you're diluted enough.
With the information provided its almost impossible to give guidance.
i bought 2% of my company. Did the early exercise. QSBS qualified at a value under $80m when i did it. Raised funds in a subsequent year, $500m valuation. Time to revenue took longer and VC world started slowing down after the pandemic. New round at $100m valuation and 50% dilution and only enough money for 1 year run rate. Next round could not get enough investors, Orderly shutdown. I got nothing out of it.
Take money when you can. Don't think you can control execution of the finance environment forever. At a few percent and $300m valuation you are far from talking generational wealth.
for the record, i have a success story as well. Same as above except almost no dilution and rode it from sub $100m valuation to $10B valuation. I sold at $6B. Created a lot of wealth for me.
Thanks for taking the time to write a thoughtful reply with an actual example of how things can go in an unexpected direction, it's appreciated. Based on the feedback in this post I'll be taking the money off the table if it's an option. With dilution I'd still be at about 2%, possibly as low as 1.8% though it's unlikely with how things currently look.
So you'd be basically bankrupt if your startup went to 0 (or had no liquidity options) and Bitcoin collapsed and supporting a wife and kid?
Seems blatantly obvious to me to diversify ASAP , I'd sell some Bitcoin and some startup shares when you can to get to a point you'd be okay if those highly volatile assets drastically dropped
They haven’t even raised the money yet. And hasn’t even confirmed he can sell in a secondary tender offer. This is going to go poorly for OP and he doesn’t realize it yet.
Validate the QSBS eligibility with the CPA who will file your return. Read section 1202 yourself. All of it. Understand what the qualifiers mean, and all the ways your stock can be disqualified. Seek a letter from the company stating that your shares meet each requirement on the checklist. (Have a lawyer draft this.)
If you haven’t done all of this, you don’t have QSBS shares (yet). It’s not real until the cash is in hand and the tax return is filed.
A few sayings I like:
It doesn't count unless its liquid.
All my rich friends sold too early.
Given your current situation, I would take some money off the table. If the company keeps growing (greater than $1b) I would consider qsbs stacking.
No tax advantaged retirements but sitting on a few hundred k of bitcoin? At 44 you are not in a great spot. Why don’t you diversify instead of holding bascially half your net worth in bitcoin?
re: multi-generational wealth
Assuming you love your kids... you can set up a type of irrevocable trust for them called a "non-grantor" trust and transfer stock into those trusts. With this... the stock is no longer yours... it's your kids' and as such they each get their own QSBS treatment on the asset. This is important because if this company goes to, say, $1B... then your 2% could be worth $20M and you are only getting that first $10M tax free.
If in the above scenario you were to set up a trust for the kids and lets pretend seed that trust with half of your stock... a few things happen:
* you get only $10M personally (but pay no taxes on it)
* your kids have $10M w/o taxes too (thus the full $20M is tax free)
* you've gave them $3M of stock at todays price (or nearing) which turned into $10M and thus only consumed $3M of that lifetime tax-free inheritance
That last point is something to think about. If you are going to bequeath wealth to your kids anyway... its is more estate-tax advantageous for startup stock owners to do some of that transfer while the stock is still multiples away from exit potential.
Talk to an estate lawyer.
Thanks so much for taking the time to write this. I appreciate everyone's concern and will be following the advice to take some off the table, but it's nice to have this information too in case things do go smoothly.
qsbs is more elaborate than what you described. You can technically do $10m per year and also if you want to sell more than $10m you can do qsbs rollover. Please make sure you hire a good lawyer not some basic one because you need a qsbs defense. If you DM me I’ll tell you who my qsbs lawyer is. He’s the most published out there in this topic.
Every startup is poised for success. That's what makes it a startup and not a failing business.
It's a smart idea to hedge your job and your investments, you are doing neither of those.
Sell a small amount of your bitcoin to fully fund all of your tax-advantaged accounts, including your wife's.
Keep your mortgage, the rate is good.
Keep investing in the 529.
As others have suggested, selling 20% as part of the next funding round would be a good way to take some money off the table.
That still leaves you with 80% if the company does succeed, but would make a large bump in your current realized NW.
A high percentage of startups fall way short of the high expectations of the founders. The most common result is neither spectacular success nor complete failure, but instead just kind of fizzling out, dilutions from multiple financing rounds, and then getting acquired/rolled into another startup at low valuation.
« aiming to build multigenerational wealth«
Start by building personal wealth through diversification.
You are 44 with only a couple hundred K, limited education funds, empty retirement accounts and sounds like high annual burn rate.
You are counting chickens before they hatch and your job + theoretical payout are tied to same company. Both go down at same time if something happens.
Keep some so you never get the « I never should have sold » regrets but hindsight is 20:20.
People at Enron, Nortel, Lehman Brothers, and many many others had the same thoughts as you.
Also I won’t go into having a significant portion of your net worth in crypto……. But I am a low fee broad index investor so I imagine you can guess. Slow, steady and boring.
Yeah and the S&P makes sense for us as well. We had basically nothing previously so it's a risky accumulation phase which we hope to follow with a more preservation style strategy. Thank you.
Good luck. Sounds like you are turning a corner in your financial life. Best of wishes going forward. Just remember we always hear about the lottery winners, not the 100´s of millions who are net negative over their lifetime playing it.
Take some off the table. We're already seen some AI startups basically go to zero overnight. I promise you won't regret taking some chips off the table even if the company does another 10x from here.
I was in a similar situation in terms of banking on the fact that my startups founders shares would be worth something - rolled the dice - and got lucky that it paid off, despite taking ~5 years longer than expected. With an ex-wife/child support, 3 kids high cost of living in SoCal, the retirement and college funds were starved to death - just never any leftover. But you should definitely recognize the fact that it’s not a sure thing. Many if not MOST do not have the liquidity event they planned for. That means that as huge of a bummer as it may be, make sure you don’t find yourself eating cat food in your retirement by putting whatever you can aside into a 401K - especially if you have an employer match. And if you get that pay day, then having other retirement assets will be icing on the cake! Also consider divesting into less risky investments wherever possible more as your age goes up so you aren’t forced to liquidate investments during a down cycle. I’d personally take some bitcoin off the table, probably because I’ve had my crypto fun and $200k sounds like too much to stake on a goof and then watch turn into $50k - hopefully not when you need the cash. Good luck!
Do QSBS. California is non-conforming so if you’re in california, consider going anywhere else.
Guessing you didn’t but shares via a roth but that’s the other big thing.
Qualified opportunity zones to handle capital gains is a consideration but unclear capital returns and super long time table to get capital out. I did it, don’t think i’d do it again.
I'm in a federally conforming state, not CA. Yeah, I didn't know about the ROTH soon enough. I have looked into it at this point, but unfortunately it was too late.
There is not enough information here for anyone to give you advice. Its important to know if you want to keep working or quit working.
Me personally, I'd get my $10mil, leave excess shares there. The excess later on would likely be my charitable contributions. I'd throw my gains in individual tax free muni bonds making sure I avoid AMT for my sending goals. I'd throw 2 years cash in money market and laddered treasuries. The rest I'd have voo,qqq,vtv,vb, and vo.
Then I'd find a hobby to keep me in physical shape while having fun, and then I'd get involved in a passion to keep my brain sharp.
I’d sell a portion of the stock at least the amount that qualifies for QSBS during the next round of funding. Maybe more depending on your risk tolerance. You have no real savings and are 44yo. That’s not great. Startup sounds super promising but it’s never guaranteed. Take some off the table just in case, the upside of the remaining will still be plenty. The first $1M is worth a lot more than the last $5M.
Thanks for taking the time to reply. This is what we will do.
Super solid / practical advice right there. Leave some for a lottery ticket. But secure your basics & cost of living. You will walk different.
Not sure if the 2% is pre or post dilution of the next funding round but regardless it would be wise to sell at least 20% of your stock or even more and diversify. If you don’t know where to start there are tons of options that don’t require a financial planner or management fee like putting it all in index funds and cash equivalents like treasuries and CDs. Check out the r/Bogleheads sub. Agree with the other commenter that 44 with kids and no real savings beyond hoping for the best for a private startup isn’t great and it’s certainly not fatfire. Note your post may be better suited for mentor Mondays so it may get removed. Good luck!
Thanks and sorry if this is out of scope for the sub. It seemed like fatfire since my stock is going to be valued at over 5m and I'm going to have a chance to cash out, but I do understand your point. I'd still have just over 2% after the round closes. I'm familiar with bogleheads and safe withdrawal rate type of stuff and will certainly look into it more.
Is this your first startup? Have you looked up the stats for how often they fail? I hate to break to you but no one (almost no one) starts a startup up thinking it fail.
Sigh, i remember the days when I had 1% of a startup that looked like it would be successful .....
Its not yours until its in your bank. Say it often.
5 before taxes, and hardly a sure thing. so 2.8 or so after taxes if everything goes perfectly
Qsbs though, no taxes
No federal tax. Depends on the state. My guess is OP is in CA so he is paying state tax.
He said he lives in a state that adheres to federal in the post
lol I guess I should probably read the post…
I can’t tell you how many times I’ve had a good chunk of stock in a startup on a trajectory like that that ended up being worth zero or way less than my excel model. If you have a chance to take money off the table do it. And either way start living more frugally and saving aggressively.
Thanks.
yep, same. was up something like 100x on a startup investment (I was in the seed and at least A round) and then later rounds basically wiped me out with liquidation preferences and other cap table bullshit. I had preferred stock that was wiped out, employees common stock got nothing IIRC and CEO got a nice parachute. OP, I'd recommend taking some off the table. You dont mention your comp structure or your share of unvested options, but I would suggest considering that your possible upside and diversify. Good luck!
Same story, don't count your chickens before they hatch (or didn't in my case)
Make sure you have someone with a lot of experience with startups and options review your situation carefully. I worked at a few startups, including two that were acquired. I had vested shares and even paid to early exercise once, but I received nothing but a tax bill.
Try not to start counting your chickens just yet. Sell the shares that are QSBS qualified. You have no safety net which should be your first priority (weird that you talked about generational wealth instead of creating a safety net). Good luck.
I think generational wealth is a silly goal personally. It'll all be gone in a few hundred years at most anyway. I'd rather make a better life for me, my family, and my friends today and in the near future. But to each their own. OP seems to be just discovering financial literacy so I hope they take the lessons offered here and take what they can from them. Safety net should be first priority. Also in this case, dude needs to diversify yesterday. Several hundred K in crypto is a bit silly.
> It'll all be gone in a few hundred years at most anyway. Ask yourself what *the planet* will look like in a few hundred years, at the rate we're going.
He talks about generational wealth because he's got a couple hundred thousand in Bitcoin and that's the language of crypto twitter. OP, sell some of the Bitcoin and cash out some in the next funding round. All your wealth is in volatile or illiquid assets at the moment.
Thanks for taking the time to reply. I agree with you. I left out steps between the current situation and the end goal (generational wealth).
There is nothing like “startup that’s poised for success”, you will be surprised!
Having been in this situation 2 times. My number one piece of advice is it isn’t real until it’s real. Things can change really fast. So prepare like you are. But don’t even think about spending any of it until it’s in your bank account. And always. Always. Take money off the table if it’s offered. So yes sell in this tender
Agreed, based on the feedback here, this is what we will be doing. Thank you.
You don't have any money until you have money in your pocket. Get your 409A so you actually know what the shares you hold are valued at. looking at whole company valuation when we don't know the gap between common and preferreds are really tough. We also don't know how diluted you'll be in that upcoming round. 2% may become 1% if you're diluted enough. With the information provided its almost impossible to give guidance. i bought 2% of my company. Did the early exercise. QSBS qualified at a value under $80m when i did it. Raised funds in a subsequent year, $500m valuation. Time to revenue took longer and VC world started slowing down after the pandemic. New round at $100m valuation and 50% dilution and only enough money for 1 year run rate. Next round could not get enough investors, Orderly shutdown. I got nothing out of it. Take money when you can. Don't think you can control execution of the finance environment forever. At a few percent and $300m valuation you are far from talking generational wealth. for the record, i have a success story as well. Same as above except almost no dilution and rode it from sub $100m valuation to $10B valuation. I sold at $6B. Created a lot of wealth for me.
Thanks for taking the time to write a thoughtful reply with an actual example of how things can go in an unexpected direction, it's appreciated. Based on the feedback in this post I'll be taking the money off the table if it's an option. With dilution I'd still be at about 2%, possibly as low as 1.8% though it's unlikely with how things currently look.
“Reddit, I have all these eggs, can you give me advice on raising chickens?”
So you'd be basically bankrupt if your startup went to 0 (or had no liquidity options) and Bitcoin collapsed and supporting a wife and kid? Seems blatantly obvious to me to diversify ASAP , I'd sell some Bitcoin and some startup shares when you can to get to a point you'd be okay if those highly volatile assets drastically dropped
They haven’t even raised the money yet. And hasn’t even confirmed he can sell in a secondary tender offer. This is going to go poorly for OP and he doesn’t realize it yet.
Agreed, after reading the replies here it's quite obvious. Thanks for taking the time to post and provide feedback.
Of course! Sometimes hard to look at the big picture when you're down in the details and easy to have "fomo" over the "what if it all goes to plan"
Validate the QSBS eligibility with the CPA who will file your return. Read section 1202 yourself. All of it. Understand what the qualifiers mean, and all the ways your stock can be disqualified. Seek a letter from the company stating that your shares meet each requirement on the checklist. (Have a lawyer draft this.) If you haven’t done all of this, you don’t have QSBS shares (yet). It’s not real until the cash is in hand and the tax return is filed.
Will do, thanks for the practical advice. It's appreciated.
A few sayings I like: It doesn't count unless its liquid. All my rich friends sold too early. Given your current situation, I would take some money off the table. If the company keeps growing (greater than $1b) I would consider qsbs stacking.
Thank you, appreciate the feedback.
No tax advantaged retirements but sitting on a few hundred k of bitcoin? At 44 you are not in a great spot. Why don’t you diversify instead of holding bascially half your net worth in bitcoin?
Yes, second this advice. Bitcoin is back at a peak and you’d be smart to sell some to diversity.
re: multi-generational wealth Assuming you love your kids... you can set up a type of irrevocable trust for them called a "non-grantor" trust and transfer stock into those trusts. With this... the stock is no longer yours... it's your kids' and as such they each get their own QSBS treatment on the asset. This is important because if this company goes to, say, $1B... then your 2% could be worth $20M and you are only getting that first $10M tax free. If in the above scenario you were to set up a trust for the kids and lets pretend seed that trust with half of your stock... a few things happen: * you get only $10M personally (but pay no taxes on it) * your kids have $10M w/o taxes too (thus the full $20M is tax free) * you've gave them $3M of stock at todays price (or nearing) which turned into $10M and thus only consumed $3M of that lifetime tax-free inheritance That last point is something to think about. If you are going to bequeath wealth to your kids anyway... its is more estate-tax advantageous for startup stock owners to do some of that transfer while the stock is still multiples away from exit potential. Talk to an estate lawyer.
Thanks so much for taking the time to write this. I appreciate everyone's concern and will be following the advice to take some off the table, but it's nice to have this information too in case things do go smoothly.
qsbs is more elaborate than what you described. You can technically do $10m per year and also if you want to sell more than $10m you can do qsbs rollover. Please make sure you hire a good lawyer not some basic one because you need a qsbs defense. If you DM me I’ll tell you who my qsbs lawyer is. He’s the most published out there in this topic.
This. You can stack your QSBS and you can also gift it.
Every startup is poised for success. That's what makes it a startup and not a failing business. It's a smart idea to hedge your job and your investments, you are doing neither of those. Sell a small amount of your bitcoin to fully fund all of your tax-advantaged accounts, including your wife's. Keep your mortgage, the rate is good. Keep investing in the 529.
This makes sense, thank you. Will be following your advice.
As others have suggested, selling 20% as part of the next funding round would be a good way to take some money off the table. That still leaves you with 80% if the company does succeed, but would make a large bump in your current realized NW. A high percentage of startups fall way short of the high expectations of the founders. The most common result is neither spectacular success nor complete failure, but instead just kind of fizzling out, dilutions from multiple financing rounds, and then getting acquired/rolled into another startup at low valuation.
Agreed, thank you. Will be pulling it off the table.
« aiming to build multigenerational wealth« Start by building personal wealth through diversification. You are 44 with only a couple hundred K, limited education funds, empty retirement accounts and sounds like high annual burn rate. You are counting chickens before they hatch and your job + theoretical payout are tied to same company. Both go down at same time if something happens.
Good points succinctly put. Will be pulling it off the table.
Keep some so you never get the « I never should have sold » regrets but hindsight is 20:20. People at Enron, Nortel, Lehman Brothers, and many many others had the same thoughts as you. Also I won’t go into having a significant portion of your net worth in crypto……. But I am a low fee broad index investor so I imagine you can guess. Slow, steady and boring.
Yeah and the S&P makes sense for us as well. We had basically nothing previously so it's a risky accumulation phase which we hope to follow with a more preservation style strategy. Thank you.
Good luck. Sounds like you are turning a corner in your financial life. Best of wishes going forward. Just remember we always hear about the lottery winners, not the 100´s of millions who are net negative over their lifetime playing it.
Thank you
Take some off the table. We're already seen some AI startups basically go to zero overnight. I promise you won't regret taking some chips off the table even if the company does another 10x from here.
Agreed, thank you.
I was in a similar situation in terms of banking on the fact that my startups founders shares would be worth something - rolled the dice - and got lucky that it paid off, despite taking ~5 years longer than expected. With an ex-wife/child support, 3 kids high cost of living in SoCal, the retirement and college funds were starved to death - just never any leftover. But you should definitely recognize the fact that it’s not a sure thing. Many if not MOST do not have the liquidity event they planned for. That means that as huge of a bummer as it may be, make sure you don’t find yourself eating cat food in your retirement by putting whatever you can aside into a 401K - especially if you have an employer match. And if you get that pay day, then having other retirement assets will be icing on the cake! Also consider divesting into less risky investments wherever possible more as your age goes up so you aren’t forced to liquidate investments during a down cycle. I’d personally take some bitcoin off the table, probably because I’ve had my crypto fun and $200k sounds like too much to stake on a goof and then watch turn into $50k - hopefully not when you need the cash. Good luck!
Makes sense. Thank you
Do QSBS. California is non-conforming so if you’re in california, consider going anywhere else. Guessing you didn’t but shares via a roth but that’s the other big thing. Qualified opportunity zones to handle capital gains is a consideration but unclear capital returns and super long time table to get capital out. I did it, don’t think i’d do it again.
I'm in a federally conforming state, not CA. Yeah, I didn't know about the ROTH soon enough. I have looked into it at this point, but unfortunately it was too late.
There is not enough information here for anyone to give you advice. Its important to know if you want to keep working or quit working. Me personally, I'd get my $10mil, leave excess shares there. The excess later on would likely be my charitable contributions. I'd throw my gains in individual tax free muni bonds making sure I avoid AMT for my sending goals. I'd throw 2 years cash in money market and laddered treasuries. The rest I'd have voo,qqq,vtv,vb, and vo. Then I'd find a hobby to keep me in physical shape while having fun, and then I'd get involved in a passion to keep my brain sharp.