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You are not taking into account QSBS. [0] When you sell your stocks before 5 years of holding period has passed, you pay significantly higher taxes. So you don
by simonebrunozzi 2y ago
You are not taking into account QSBS. [0]
When you sell your stocks before 5 years of holding period has passed, you pay significantly higher taxes. So you don't get 500k net, you get 500k gross, or probably 300k net. Which makes the de-risking less compelling.
[0]: https://www.investopedia.com/terms/q/qsbs-qualified-small-business-stock.asp https://www.investopedia.com/terms/q/qsbs-qualified-small-bu...
- nine_k 2y agoThis is when you immediately liquidate your stock position, instead of taking a loan using it as a collateral, which would likely cost you 10%-15% in interest, not 30%.
- andrewmutz 2y agoNo, in this example the person sold equity in order to get the 500K. They can't use the equity as collateral for the loan because they dont own it anymore
- nine_k 2y agoYes. They should not have if they were to optimize taxes.
- tyre 2y agoBut then they’re paying interest and very few startups are going to have stock that a someone will lend against. I cannot imagine someone taking Series A stock as collateral for a loan.
- kelnos 2y agoI think it'd be pretty rare for a bank to accept equity in a series A startup as collateral for a loan.
- andrewmutz 2y agoAnd even if it did, it wouldn't really derisk much for the founder, which was the original purpose of taking money off the table.
- rKarpinski 2y agoNot sure why you are getting downvoted. There are multiple ways of structuring what is effectively selling the shares early that are not tax disadvantaged.
- lotsofpulp 2y agoI do not see the purpose of this nitpick. The numbers are made up anyway, adjust up by a few hundred thousand and the point that securing one’s shelter is worth foregoing winning the lottery still stands.