Life Events Liquidity: When a Sale Makes Sense

Equity in a private company can feel like holding a winning lottery ticket you can’t cash in yet. It represents potential future wealth, but it’s not readily accessible. Life, however, doesn’t always wait for an IPO. Sometimes, life throws curveballs – expected or unexpected – that require accessing liquidity now. That’s where understanding “life events liquidity” comes in.

Life events liquidity refers to selling a portion of your private company equity to address a significant financial need or goal tied to a specific life event. These events can range from essential needs to exciting opportunities.

Need-driven liquidity: Think of these as situations where accessing capital is critical:

• Job Change/Loss: Perhaps you’re leaving your company and need to exercise your options, but lack the funds to cover the exercise price and associated taxes. Selling a portion of your shares can help navigate this transition smoothly. See also: [[Net Exercise/Cashless Exercise

  Efficient Option Strategies]]

• Medical Expenses: Unexpected medical bills can strain finances quickly. Tapping into your equity can help alleviate this burden.
• Tax Obligations: Significant tax liabilities, especially from exercising options, can arise before you’re ready. Selling shares can provide the funds needed. See also: [[Alternative Minimum Tax (AMT)]]
• Divorce/Estate Planning: These situations often necessitate liquidating assets to meet legal or financial obligations.

Want-driven liquidity: These are generally less urgent but still compelling reasons to consider selling:

• Down Payment on a Home: That dream house might be within reach sooner with a boost from your equity.
• Diversification: Holding a significant portion of your wealth tied to a single private company can be risky. Selling some shares allows you to diversify your investments and reduce risk.
• Funding a New Venture: Perhaps you’re an entrepreneur at heart and ready to start your own business. Selling some equity can provide seed capital.
• Early Retirement or Career Change: A partial sale can help bridge the gap to your next chapter.

Considerations Before Selling:

• Company Policy: Review your company’s shareholder agreement and any restrictions on selling private shares. See also: [[Shareholder Agreement]], [[Right of First Refusal (ROFR)

  Company’s Option to Buy Back]], [[Lock-Up Periods

  When You Can’t Sell Yet]].

• Tax Implications: Understand the tax consequences of selling, including capital gains taxes. See also: [[Capital Gains Tax]], [[Qualified Small Business Stock (QSBS)

  Potential Tax Savings]].

• Valuation: Get a clear understanding of the current market value of your shares. See also: [[Valuation

  How Private Companies Are Valued]], [[Indicative Pricing]], [[Instant Offer

  Getting Indicative Pricing]].

• Long-Term Implications: Consider the potential upside of holding your shares if the company continues to grow. Selling early means potentially missing out on future gains.

Earlyasset can help. We provide a confidential, low-friction way to explore your options and potentially sell your shares. See also: [[Selling Your Shares with Earlyasset

The Process]], [[Earlyasset’s Confidentiality Promise]].

So here’s what we covered:

• Defining life events liquidity and its two main drivers: need and want.
• Examples of both need-driven and want-driven liquidity events.
• Key considerations before deciding to sell private company shares.
• How Earlyasset can assist shareholders in navigating the process.