- IPO Lock-Up Period - Option Strategies for Beginners - Jonathan Rose - Active Day Trader - Options
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Perhaps by now you’ve settled down after reading the news of the Uber IPO filing a few days ago. My clients who used to work at Uber are, of course, Pretty Darn Excited about the announcement that Uber has filed for IPO, likely in Q1 of 2019.
Most people have never been through an IPO before. Or if they’ve gone through it, only once before. I say this to emphasize that this is Entirely New Territory for most people.
So, excitement, anxiety, uncertainty…totally understandable!
A while ago I wrote a blog post about what you should do if your company’s going IPO.
IPO Lock-Up Period - Option Strategies for Beginners - Jonathan Rose - Active Day Trader - Options
I checked…it’s still good. All its general commentary applies to this Uber IPO.
But now, NOW, the difference is that you’re actually going to go through an IPO. Paperwork is filed. It’s happening.
To you. With implications for your money and your life and your career. And you have to make some decisions. Makes it much more exciting and nerve-racking than simply thinking about it academically, no?
If you currently work at Uber, or if you used to work at Uber, you likely have Uber stock in some form:
- RSUs (vested or not)
- stock options (vested or not)
- actual Uber stock from exercised options
Each one of those forms of stock/stock compensation will operate differently when Uber actually goes public.
How Long Is an IPO Lock-Up Period?
More accurately, you need to think differently about each type in anticipation of Uber going public.
And more broadly, regardless of the technical form of your stock ownership in Uber, you need to think about how this financial change—potentially a very large financial change—is going to affect your life, and how you want to respond to it.
Consider This Before the IPO
Most of you can’t do much before the IPO—and the lockup period—are over.
You just have to sit tight and wait for the magic (we hope!!) to happen. There are a few things, however, that you might want to do, so let’s think about them pronto.
Make a Plan for After the IPO
I’m guessing for most of you, however, the planning for after the IPO is where the real value is at this point.
Please, start making a plan now.
Before the IPO happens and the lock-up period is over is the perfect time to think more rationally about what you’ll do at that point.
Do not wait until Uber goes public. Do not wait until you suddenly become the owner of (perhaps lots and lots of) stock in a public company that you can now sell on the stock market for dollah dollah bills, y’all.
You’re going to be too emotionally wrapped up in the excitement, in the stock market gyrations, and in whatever all your Uber co-workers (or former co-workers) are doing to make good, thoughtful decisions.
Do You Have RSUs?
If you have RSUs, you can’t manipulate those much. It’s mostly just a matter of waiting until they vest, but then you’ll own Uber stock! Right now you should be sure to understand:
- How does the vesting of RSUs at Uber (a private company) work?
Vesting in public companies is usually straightforward: You just wait until the vesting date, and voila, the stock is yours. But if it’s a private company, it can work differently. Ultimately, it’s your RSU grant document that will answer all these questions.
- How much will you owe in taxes upon vesting, and how will you pay it?
Ubr ipo lock up period
The standard tax withholding on vesting RSUs is 22%…but quite likely your income-tax rate is higher than that. So, how much extra do you need to pay, and how are you going to pay it?
Do You Own Uber Stock (Or Will You Right After the IPO)?
If you own Uber stock, or you will by the end of the lockup period, what are you going to do with the stock?
Donate it? Keep it? Sell it?
If you plan to donate it, please don’t sell it first. It really is better to donate stock (as long as it hasn’t lost value below what you effectively paid for it) than sell it and donate cash.
Leverage our market expertise
If you plan to sell it, what will you do with the money? Do you have a plan for your future, so you can intentionally allocate your newfound money towards your goals and vision of a good life?
How much will you owe in taxes, and how will you pay those taxes?
If you plan to keep it, understand the risk you’re taking by keeping a lot of stock in a single company, especially if that single company is also your employer!
(This is less of a risk if you no longer work at Uber…but you still have the single-company-stock concentration to deal with.)
Also think about why you’re keeping it.
Plenty of questions
Are you certain Uber is going to grow in value? If you have that confidence, be aware of the horrible track record of stock market predictions, even (or especially?) by the experts. I think this quote sums up nicely the difficulty of correctly, reliably predicting how a company’s stock will perform:
“Predicting short-term movement of any stock or the market in general, not only calls for an ability to correctly predict all these parameters [political and geopolitical events, natural disasters, news reports, legal decisions, etc.] but also an ability to predict how the majority of investors would react to each of these events.
It is beyond the scope of almost all investors to correctly and consistently predict these things.” [source]
Could this IPO give you F-U money?
What does that mean for your life?
Will you still want to work at Uber? In tech? At all?
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All those considerations—and more!—go into determining the best plan for you.
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I know some of you are savvy and interested in personal finance and all that sort of rot and can make a reasonable plan on your own.
Judging by the people I talk to, I know there are also plenty of you out there whose brains stop at “Uber’s going IPO! This could be big!
Um…<kersplat>!” For you? Please consult a professional.
Talk with a CPA at the very least to make sure you don’t screw up your taxes. And ideally to optimize the tax situation (minimize the amount of taxes you owe over time).
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A few hundred dollars of consultation with a CPA can save you far more than that in taxes over the long-term and also prevent any nasty surprises.
(I’ve got a good one, if you want a referral.)
Talk with a financial planner (I happen to know a great one!) to help you make financial decisions that are appropriate for The Whole You. To help you understand what’s happening, and to feel more comfortable and confident in the decisions you make. To help you take best advantage of this amazing opportunity!
So Many Considerations!
As I looked at a draft for this blog post, I realized that I basically just vomited questions and ideas and things to consider onto the page.
IPO Lockup Expirations
That irked me and I tried to make it more of a “if this then do that” kind of actionable post. And I failed. The problem is: I don’t know what your situation is! Do you have RSUs? Do you have stock? Options? Are you a current employee or former? Did you already participate in the tender offers?
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How much stock do you have left from your original holdings? How old are you? What are your career aspirations? How much money do you have outside of Uber stock?
If Uber’s IPO happens, say, March 1, then the lockup period will likely end 6 months later, on Sept 1. So, if you own a bunch of Uber stock, Sept. 1 will be your Day of Reckoning.
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You have to sit on your hands for 6 months, starting March 1, watching the market do….whatever the market will do to Uber stock. If you had some sort of superhuman self-control, you’d simply forget about it all for those 6 months, ‘cause it’s not like you can do anything about it if the market soars or tanks during that time.
Good luck with that…
The most useful thing you can do, starting now and through that lockup period, is to to create a plan. Because when Sept. 1 comes (or whenever the lockup period ends), you might get a gigantic bucket of money in your lap.
And that can go great if you deal with it intentionally. And it can go, uh, less great if you go bonkers.
Do you work at Uber or did you used to, and you know this could be Big and you’d really like to figure out how it’ll work for you? Reach out to me at [email protected] or schedule a free consultation.
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Disclaimer: This article is provided for general information and illustration purposes only.
Uber's lockup expiration may be muted because a ton of shares are underwater
Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved.
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