Case Study: Original Owner of Healthcare Technology Company IPOs - Managing a Windfall

Setting:

Newly-married couple in their early 30’s originally met and worked in New York before moving to Austin where she joined a privately-held, healthcare technology company.

She found the work to be both high energy and highly demanding. While the compensation was generous, they knew they wanted to build a home, start a family, and achieve financial freedom at an early age. An expected Initial Public Offering (IPO) could provide those opportunities. As such, it became the impetus for reaching out to our firm.

How Did We Help?

Both spouses had been goal-focused, collegiate athletes. Their focus and discipline carried over into their life together and elevated them in their respective careers. The main focus of our planning came down to determining the cost of their goals (“the equations”) and the trade-offs they faced to achieve them (“the emotions” and values component).

As their planning was pre-IPO, there were a number of uncertainties to contend with. To assist their decision-making process, we built extensive models, working through multiple scenarios around the possible outcomes of the IPO. And, we helped sort through various aspects of her equity compensation both pre- and post-IPO:

  • Pre-IPO: Minimizing taxes through Section 83(b) elections for her Incentive Stock Options (ISOs).

  • Post-IPO:
    • Developing a strategy for exercising her Non-qualified Stock Option awards (NSOs)

    • Creating a Section 10b5-1 plan enabling her to systematically reduce her stock position once certain price targets were met, regardless of the blackout windows when she could not sell stock due to her status as a “corporate insider.”

The variables associated with the house purchase seemed the most daunting as we exhibited how the magnitude of the home purchase impacted their other goals – children, private schools, college, vehicles, and financial freedom at an early age. Working with them, we were able to prioritize their goals based upon their values, helping them think through the trade-offs between the amount to spend on the home and the impact that amount would have on their other goals.

Result:

Clients have (thus far) decided against private school for the kids, and continue to think through the home building process. By most measures, they have already achieved financial freedom, yet they still need to be responsible stewards of their wealth due to their relatively young age and expected long life-spans.

Undoubtedly, we will need to adjust their plan as “life happens.” But, the effort we have put in with them to date makes it easier for us to respond to those events with choices representative of their values and goals.