Stock Options for Startup Employee Equity Packages
Image credit: Peqsels
Wouter Witvoet and Frederik Mijnhardt started working at the London-based ride-sharing startup Karhoo in 2015. They were two of the first employees. They were excited to see their compensation packages included stock options in the business. It was the first time either had received this type of benefit, and they dreamt of being wealthy.
But when Witvoet left the company a year later, he found out that he had only 90 days to exercise his options. He also had a hefty tax bill of more than $1 million. Without the cash or a bank to lend him money against private stock, the entire equity package would be lost.
“I was looking around in the office, and there were 250 people working there, and I’m like, none of my colleagues know what’s coming for them,” Mijnhardt says. “That was our hypothesis.”
The Two Employees Form Secfi
From this experience, Witvoet and Mijnhardt founded Secfi in 2017 to educate startup employees, They also provided help to make better financial decisions about equity packages and exercise their options.
Secfi recently announced it had reached $700 million in financing capital. It reached this level after a $150 million investment from New York-based Serengeti Asset Management.
The company posted on Twitter. “We’re excited to announce we’ve secured additional financing that will allow us to help even more startup employees better understand and own their stock options.”
There are nearly $17 billion worth of startup stock options registered on the platform. Th is a 466% jump from $3 billion in 2019. Mijnhardt anticipates near $38 billion by the end of 2021. Mijnhardt says valuation is at $42 million. Secfi works with current and former employees of 80% of all U.S.-based unicorn tech companies. This includes big names like DoorDash, Airbnb, Snowflake, and Palantir.
Startup employees looking for help with their equity packages can sign up for a free Secfi account. This gives them access to the company’s tools. The tools can calculate their potential payouts and estimate their tax bills if they choose to exercise their options. They can also talk to experts about their benefits package.
“There’s a lot of complicated and difficult decisions to make, and there are really big financial consequences if you don’t make the right decisions,” Mijnhardt says. “It can put you in a really tough situation where you’re afraid to quit your job because you might lose that entire package. We’ve all heard of the concept of golden handcuffs—that’s sort of what happens.”
Secfi also Helps Employees Who Want to Exercise their Stock Options
The startup company also provides financing for those who want to exercise their options but don’t have the capital. Secfi charges a fee that varies based on the risk profile of the company. It will cover the exercise costs and taxes. The employee must only make payments against the financing when their employers go public or through another type of liquidity event.
Jody LaNasa, the founder and managing partner at Serengeti, says his investment firm has provided financing to current and former employees of more than 70 different startups. He says he wants to increase that number with this latest round of funding.
“I get to spend my days learning about how the most disruptive, transformative companies are learning and functioning,” LaNasa says. “It’s been great working with Secfi to help all these employees preserve the wealth they’ve generated from years of hard work.”