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Frequently Asked Questions

• What should I know about my pre IPO stock?

  If you choose to exercise pre-IPO, the estimated value of the stock you purchase is likely based on the most recent assessment of your company’s fair value, which is calculated periodically. You’ll likely need to wait until the next valuation to know whether or not the stock price is up or down, and whether or your exercise was a good decision.

• When is the best time to invest in IPOs?

  This allows you to invest in the firm when it is at the very start of its journey as a PLC. However, it is often difficult (but not impossible) for everyday investors to gain access to IPOs, which is why you typically need to wait until the shares hit the secondary marketplace.

• How does an IPO work in the UK?

  In its most basic form, this allows the company to raise capital from outside investors. In return, those that invest money into the IPO will receive shares. From then on – the shares will trade on a public stock exchange like the UK’s London Stock Exchange or the NASDAQ in the US.

• Can you trade your stock options before an IPO?

  Keep in mind there are few opportunities to exercise your stock options and trade pre-IPO shares privately. Even under these limited circumstances, no such sale can take place unless the company’s board of directors approves. Your stock option plan document will outline what must take place in your situation.

• When to consider value of pre IPO stock options?

  Keep in mind your options only have value when they are beyond the strike price. When trying to calculate value of your pre-IPO options, don’t go with the number of shares you have per se, but the percentage of ownership those shares give you in the company.

• What happens when IPO lock up period ends?

  There are no SEC regulations mandating such lockups, but a company that fails to implement a lockup risks severely harming their stock price. Underwriters of the IPO usually require lockups. Expect a fall in the share price, usually less than 3 percent, when the lockup period ends.

• What happens in the second phase of an IPO?

  The second, transactional stage involves efforts to maximize valuation for potential investors. This occurs shortly before going public. The third, post-IPO phase is when the IPO has taken place and the company is going full speed ahead trying to exceed expectations. Companies that beat estimates over the long-haul are well-rewarded.

• Do you have to pay taxes on stock you sold before the IPO?

  When you sell your stock, you must pay capital gains tax on the sale. However, if you sold pre-IPO shares, you could end up getting hit with the Alternative Minimum Tax. As of 2018, the Tax Cuts and Jobs Act allows employees exercising stock options additional time to pay the federal taxes owed on the income received from the options.