Disclaimer: Equity is a big deal and I don’t want you to mismanage yours on my behalf. Use my post as a starting point, then, do your own research.
Some history: Back in the 2000s, most employers gave out options. With options, you get the option to buy your share at some fixed price called the strike price. Later, the share price will go up, but you can still purchase at the strike price => profit.
But then, Microsoft invested huge $$$ into Facebook in 2007. This gave Facebook a huge valuation. With an already huge valuation, how could the share price go up further? Employees got sad. Cuz how can you get gains from exercising your options then 😞
Enter RSUs. RSUs are when the company pledges to give you shares at a later date—through a vesting schedule.
Since you actually get the shares, you don’t need to worry as much about share price increases to get your money.
Here’s the surprising thing: you should sell most of them.
With options, taxes confuse the matter, but RSUs, they are taxed when they vest, so when you get them, the taxation is over.**
Think: If your company gave you a $100k year end bonus, would you immediately put all $100k into buying company stock?
That’s risky. You should probably have a minority of your investment portfolio be equity, and a majority be safer things.
This might be hard in practice, because of the endowment effect:
People are less likely to give up things they own, than to work to get things they don’t.
**Unless your company has double trigger taxation, so keep an eye out for that. This is when you’re taxed at vesting and liquidation.
This is where I start to get confused.
First, when can you actually sell your RSUs? My offer letter says at “liquidity events.” There’s acquisitions and IPO, sure. There’s also tender offers.
Tender offers are where an investor offers to buy your RSUs. I don’t know if the price you can liquidate at is a fixed price, and if so, what window of time.
Second, does dilution affect how I should approach this? If my company raises another round, or gives out more shares to employees (refresher grants), does that affect my shares in a way I should be worried about?
Third, can someone double check me on the taxation? I wanna be 200% sure I understand that.
Fourth, if I should sell most of my RSUs, should I sell them all in one go, or should I reverse dollar cost average them out? As in, should I sell them all at once, or a little at a time?
I suppose the latter definitely safeguards you more against fluctuations in price. But not sure if that’s all there is to the answer.
Would love if people could point me to answers/resources!