Sand Hill's Chief Investment Officer, Brenda Vingiello, CFA, made a guest appearance on CNBC's Closing Bell on April 27, 2023 to share her views onread more
The Last Mile Logistics of a Liquidity Event
For founders, early-stage employees, and executives alike, the opportunity for a sizable personal liquidity event is the result of considerable talent, tremendous amounts of work, and a little bit of luck. But while building a company or product has brought them to the doorstep of an IPO or sale of a concentrated position, it’s at the end of the journey where operational execution is required to harvest the full rewards of their efforts. Taxes and market movements are two factors that make ‘last mile’ logistics a critical determinant in how much wealth is captured upon liquidation of a position. With the possibility of federal and state taxes taking nearly half of the proceeds in an equity sale or a newly traded position suffering a steep sell-off, it’s essential that well-considered investment, tax, and legal strategies are completed with maximum efficiency.
Develop Strategy with Financial, Legal, and Tax Advisors: The obvious, and most likely starting point, in the march to a liquidity event is working with a team of professional advisors. Since there is an overlapping nature to legal, tax and financial actions, collaboration amongst those professionals is important. Creating new entities for gifts to children, philanthropic giving, and generating lifetime income streams should be considered. Identify shares, options, and RSUs with the most beneficial tax treatment for liquidation and determine if any qualify for tax-advantageous Qualified Small Business Stock (QSBS) treatment.
Open Brokerage Accounts and Deposit Shares for Newly Created Entities: On the heels of productive tax and estate planning, with newly created entities in place, corresponding brokerage accounts should be opened. As soon as allowed, shares must be transferred into these entities for initial funding. Placing the appropriate share quantities and lots in the targeted entity accounts prior to liquidation is imperative to optimize after-tax returns.
Move Assets from Transfer Agent to Brokerage Account when Possible: Companies with equity compensation programs generally utilize the services of a third party to help track, administer, and execute holdings on behalf of employees. Those third parties come in two varieties—brokerage firms and stock transfer agents. Their services, technology, and capabilities differ greatly with the traditional brokerage firms, typically far outpacing their transfer agent counterparts who often are a slow and bureaucratic maze. This is most evident at time of executing sales, when the ability to place specific, time-sensitive trade requests with price and lot parameters isn’t possible at transfer agents. Moving shares from a transfer agent to a brokerage account, whenever possible, is usually advisable.
Be in Close Contact with Company’s Legal Counsel: For executives and any other insiders subject to SEC disclosure, working with corporate counsel is an absolute. The utilization of 10b5-1 plans aids in transparency for the company and diversification for the individual. Prior to presenting a proposed plan to counsel, it’s best to understand upfront the company’s policy on 10b5-1 plans as it varies from company to company. Providing a draft proposal in the preliminary stages is an effective way to ultimately gain timely approval. Additionally, ensure that your brokerage firm and financial advisor are in contact with the company as well, as regulatory filings are required on short notice.
When entrepreneurs and others toil for years to build a successful company, the dreams of the financial rewards very rarely involve thoughts of a transfer agent or the IRS. For 40 years, Sand Hill has worked with founders, executives, and their families to navigate the last mile from entrepreneurial dream to financial reality. Should you be facing this wonderful opportunity, we stand ready to help you harvest your hard-earned gains with operational excellence.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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