After YEARS of speculation, DocuSign has confidentially filed to IPO in the next six months, according to several sources. You can learn more about the details here: https://techcrunch.com/2018/03/20/docusign-has-filed-confidentially-for-ipo/
Having worked with several people at the Company, the conversation about the IPO has been a bit of an ongoing drama. Several people who joined back in the late 2000’s were told it was likely happening in the next “couple of years” and here we are. This is very different, however, as this is the first time DocuSign has taken legal steps to push this forward in 2018.
Many of the people we have worked with have done advanced planning over the past several years, and because of that, are set up to save 15-20% on every share they ultimately sell. For some, this tax savings is six figures and even seven figures for others. However, there are still many people who have done nothing and still are frozen in time, not sure what to do or wondering if it is too late.
The answer is – it’s not too late – but you need to act soon. The IPO window is still several months out, followed by a blackout period which means that employees are likely a year away from selling a meaningful number of shares. Here is what you need to do now:
Determine The Number of Options you can exercise TAX-FREE.
- You should have been doing this every year since your equity vested, but you can at least start now, in 2018.
- Start with your lowest priced options first as these expire the soonest and have the least cash required.
As Part of a Plan – Determine How Much you are Willing to Invest Now:
- This investment is the combination of the exercise price and the projected AMT due on the exercise – the cost of the options is due now, the taxes will be due by 4/15/19.
- You should consider the above, but also how a future sale will affect liquidity and tax efficiency.
Have a Plan for the “THEN WHAT”:
- Once you sell, you need to have a detailed plan as to how the dollars are allocated based on your immediate and long-term goals.
- This may be the only big liquidity event you have so plan wisely.
- Allocate investments among “stock market based,” downside protected investments (100% principal protection while still achieving most of the market upside) and non-market correlated investments to achieve true diversification.
PLEASE use TAX Diversification:
- Where will tax rates be when you start to use the money for retirement etc. Higher? Lower? Your guess is as good as ours.
- Allocate assets to three tax buckets – Tax-Deferred (401k/IRA), Capital (Stock, ETF’s, Mutual Funds, Real Estate and most importantly, Tax-Free (Roth IRA, LIRP).
- Utilize the tax-free bucket as much as possible. This will be your true retirement plan, without the normal tax-rate risk.