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Like a lot of startup employees, Victor found he had to educate himself on how his incentive stock options (ISOs) worked — his employers couldn’t legally provide him financial advice, and his coworkers were just as much in the dark as he was.
At one point, while working at a successful pre-IPO company, he found himself building a chart that modeled out multiple scenarios for his stock options, in hopes of answering questions like:
- Should I exercise my stock options before an IPO, after an IPO, or wait for a secondary liquidity event, and how would each choice affect my taxes, AMT exposure, and overall risk?
- Will exercising my options trigger the alternative minimum tax (AMT)?
- How should I pay for my stock options?
Victor knew that each scenario he had modeled out could lead to very different outcomes: higher taxes, lost upside, or financial risk he was not comfortable taking on alone. In the back of his mind was the possibility, however slim, that the company might fail or that any IPO, acquisition, or secondary liquidity event could take far longer than anyone expected, which made it even more important to understand his equity and how to finance his stock option exercise before making a move.
He understood the upside, but he also respected the real risk it took to get there, especially the tax and liquidity uncertainty tied to his stock options.
His challenge? He had saved enough money to exercise his ISOs out of pocket, but once he factored in the potential AMT bill at current thresholds, the total cost was so high that it felt “possible, but not comfortable,” he said.
Buying his stock options with cash would have been a straightforward transaction, but he was wary of locking up so much of his own savings in a single, illiquid company stock. Traditional financing options did not feel like a solution either, since they often required personal guarantees or put his other assets at risk, which was exactly the kind of financial stress he wanted to avoid. With Secfi’s non-recourse financing, he could cover his exercise costs and potential AMT bill without putting his personal assets on the line, and only repay if there was a future liquidity event such as an IPO or acquisition.
Ultimately, he decided to apply for non-recourse financing from Secfi.
Secfi covered the cost of exercising Victor’s pre-IPO stock options. Unlike a traditional loan, Secfi would assume all the downside risk — if the company fails to exit, Victor doesn’t have to pay Secfi back. If the company successfully exits, in the form of an acquisition or an initial public offering, Secfi would take a portion of the profits.
“I’m reasonably conservative; I try to keep my personal finances safe,” Victor said. Secfi “felt like the safest option. There is upside, maybe a little less than the other possibility, but there is almost no downside, and I might as well play it as safe as you can go while still participating in my company’s potential exit.”
A long tech career taught him the real cost of waiting to plan his equity
Victor said his decision was informed by more than two decades in tech, watching colleagues struggle with stock options, unexpected AMT bills, and tight 90-day exercise windows after leaving a company. As an engineering leader, he co-founded companies that successfully exited to larger competitors and saw firsthand how a thoughtful equity plan could change outcomes for employees. He has worked for early-stage startups as well as larger enterprises, which gave him a clear view of how tools like Secfi can help employees actually benefit from the equity they work so hard to earn, while planning ahead for tax rules like AMT that can materially affect the value of their stock options.
In his experience, he said it’s rare for technology companies to give their employees the education they need to make informed decisions about when and how to exercise their stock options. Many times, people leave a pre-IPO company and are surprised to find they have 90 days to come up with the thousands of dollars necessary to exercise their stock options. If they can’t, they risk losing their stock options entirely.
“It’s amazing that companies that give a huge amount of value to their employees in the form of stock options quite often don’t do a good job of explaining how it all works,” he said. “...Usually it’s like, ‘Hey, here’s a pool with sharks. Go swim, enjoy.’”
Victor said he chose Secfi because the team was responsive and clear, walking him through how exercising his stock options could trigger AMT, what that might mean for his long-term tax outcomes under current rules, and how non-recourse financing could help cover exercise and potential AMT costs, all in plain language so he could make a decision that fit his personal finances.
“Secfi was definitely the best,” Victor said. “I got responses immediately, it was amazing. From my first email to having financing in place to cover my option exercise and the potential AMT bill, the whole process took about two months. Looking back, I’m like, ‘Yep, this was a good decision.’”
This testimonial is not meant to be used as investment advice. The testimonial may not be representative of the experience of other customers and there is no guarantee of future performance or success.