Secfi, the leading equity planning and financing platform for startup employees, today published their annual State of Stock Options Report. Since 2017, Secfi has been the startup community’s leading equity advocate, and has worked with employees from 80% of all U.S. unicorns — helping them understand, maximize, plan, and provide cash to unlock the value of their employee stock options. More than 30,000 startup employees have used Secfi’s platform for equity planning, representing more than $48 billion in equity.
2022 was a painful year for startups, and startup employees, as venture capitalists pulled back on investments and company valuations fell amid a prolonged bear market. Stock options are a high risk-high reward form of compensation that remains one of the most compelling drivers of startup employment and retention; underwater stock options have the potential to negatively impact the startup ecosystem.
Secfi’s third annual State of Stock Options Report analyzes how the ongoing bear market affected how startup employees managed their personal stock options in 2022. Key findings include:
- In 2022, 24% of startups on the Secfi platform reduced their fair market valuation
- Stock options make up 86 percent of the total net worth of the average startup employee, according to financial data that employees voluntarily shared with Secfi
- In 2022, the average startup employee on the Secfi platform required $846,000 to exercise their stock options and pay associated taxes. Like in previous years, taxes continue to make up the majority of the total cost to exercise.
“Following a historic number of IPOs in the prior year, 2022 demonstrated a pullback in VC funding, IPOs, and thus opportunities for employees to obtain liquidity from the companies they have worked so hard to build,” said Secfi CEO Frederik Mijnjardt. “Data suggests that 2023 will continue to be challenging for late-stage startups, squeezed by unfavorable public market conditions for an IPO, dwindling cash runways, and investors who may aggressively negotiate down rounds and structured deals, to reduce their risk. However, for employees who are bullish on their company’s future prospects, opportunities will still exist to earn more stock options during down rounds, and to strategically exercise their existing stock options in a tax-efficient manner.”
With the pullback in venture capital, many startups have had to assume decreased fair market values. In these situations, the cost to exercise could decrease due to their tax liability associated with a lower valuation, making the ability to exercise more attainable for many. New hires at tech companies, especially later-stage startups, may also receive more attractive and favorable equity compensation packages.
“The actual number of startups that cut their valuations in 2022 is difficult to quantify, because those that do typically don’t say so publicly,” said Natalia Sanchez, Head of Capital Markets and Strategy at Secfi. “What is clear from our platform, and from public data sources, is that a meaningful percentage of startups lowered their valuations this year, or offered their investors concessions to raise money at a flat valuation.”
To read the full report visit: www.secfi.com/2022report
Since 2017, Secfi has provided non-recourse financing solutions to startup employees who want to exercise their stock options or unlock liquidity from their shares, enabling them to optimize the value of their equity and build wealth for the future. Building upon this expertise and bringing modern wealth management solutions to startup employees the company offers Secfi Wealth, a fully comprehensive financial advisor, providing ongoing investment management specifically for the startup community.
About Secfi
Secfi is trusted by startup employees for equity planning, stock option financing, and wealth management. We’re the first to provide a digital platform for equity planning, 1:1 financial advice, and ongoing investment management, as well as financing products that enable employees to own a stake in the company they helped build. We’ve worked with employees from more than 90% of all U.S. unicorns, and built more than 30,000 equity plans worth $48B in equity value. As an expert in valuing private companies, Secfi has studied and underwritten hundreds of high-growth startups. For more information, please visit www.secfi.com.
Investment management and financial planning products and services are offered by Secfi Advisory Limited, an SEC-registered investment adviser. Brokerage products and services (including stock option financing) are offered by Secfi Securities LLC, member FINRA/SIPC.
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