The Big Picture: In the run-up to an exit that would monetize a closely held position, a tech CEO turned to TwinFocus for comprehensive wealth structuring as well as tax and estate planning advice. Our wealth planning team met with her to understand her executive compensation scheme, how to time and maximize the sale of stock and exercising of options for optimal tax treatment, and how to manage the net after-tax proceeds to fulfill short-term financial goals while also planning for her next big moves – and her family’s multi-generational prosperity.

The Backdrop: After a slow couple of years, the Initial Public Offering (“IPO”) market is showing signs of life once again. This means that a growing group of newly minted centi-millionaires will face the challenges and opportunities that come with sudden liquid wealth.

A major corporate liquidity event – whether a sale or an IPO – can have far-reaching implications. For a company’s founders and executives, it represents a watershed moment not only in their careers, but also in the trajectory of their own and their families’ financial and personal lives.

Our Approach: TwinFocus believes in taking a total balance sheet approach to managing wealth. This entails balancing the concentration risk associated with maintaining closely held private (or public) stock with risk mitigation and management strategies within diversified investment solutions. Concentration of one’s wealth can be incredibly financially rewarding; many TwinFocus family office clients are entrepreneurs and C-suite executives who have been handsomely rewarded by concentrating wealth in specific opportunities.

However, building a sustainable and enduring family office solution requires a thoughtful approach to divesting, and ultimately diversifying, this concentrated wealth to endure and thrive across multiple environments. In the case of a founder or executive on the cusp of a liquidity windfall, that can mean planning for six months to a year before the balance sheet fully reflects their newfound wealth.

We take a multi-faceted approach, including:

Advanced planning, including a thorough examination of executive compensation options and other types of compensation schemes

Creative multi-generational wealth and tax planning

Post-transaction investment and wealth management

Ongoing legacy and philanthropic planning

We also often counsel entrepreneurs on how the type of exit they pursue may impact their overall financial picture. While an IPO can be appealing in terms of overall valuation, monetizing the stock can be a protracted process when going public – and a cash buyout or strategic sale may ultimately be a more preferable option under certain scenarios and fact patterns.

The Situation: With plans for an exit starting to crystallize, a tech entrepreneur began working with TwinFocus more than a year before her company’s public offering. This event was poised to turn her from a multi-millionaire to a centi-millionaire overnight, and while she knew her situation would drastically change, she did not have a full grasp of the tax, legal, financial, and multi-generational implications – as well as the future liquidity, investment, and risk management concerns – it would entail.

The Solution: Partnering with TwinFocus helped our client climb the learning curve of coming into such significant wealth at a much quicker pace than she could have on her own.
Among our initial tasks were a) constructing a comprehensive family balance sheet, b) compiling a comprehensive pro forma financial model, and c) reviewing the family’s existing multi-generational plan, which was created years before and reflected a very different level of wealth and asset complexity, as well as different goals and objectives for the family’s children and their financial future. After much deliberation and financial modelling, we provided a new structure and framework that fully optimized their combined lifetime gift and estate tax exemptions, while simultaneously addressing multiple family objectives.

The next point to address was her equity compensation, which consisted of different executive compensation structures, including preferred stock, RSUs/PSUs, incentive, and non-qualified stock options. We formulated a plan to ensure she capitalized on the optimal timing for a) exercising options, b) paying for the vesting of RSUs/PSUs, and c) selling her vested shares, including taking advantage of favorable long-term capital gains rates, while ensuring she had liquidity on hand to cover her resulting tax obligations. By transferring certain types of equity in specifically designed entities and trusts for her two children, we were able to stack state and federal tax benefits and potentially mitigate creditor risks.

In the years following the IPO, our conversations with our client continue to evolve. We help her to pursue her philanthropic goals, appropriately title and finance real estate purchases, and manage multiple trusts for her children. As she embarks on new business ventures – including a foray into venture capital and new board positions – we are by her side, ensuring her assets are appropriately positioned and aligned as her financial and personal situation evolves. We also help her think creatively and negotiate compensation packages for her various post-IPO ventures.

The Bottom Line: A liquidity event is life-changing, especially for those founders and executives who are coming into remarkable wealth for the first time. Getting it right the first time can mean not only unlocking financial possibilities in the present, but also achieving financial stability for generations to come.

Disclosure: Case studies may not be representative of the experiences of other TwinFocus clients.