How do new grads afford their stock options?

Editor’s note: A version of this question originally appeared on Reddit.‍

I recently graduated from school with a CS degree and joined a tech startup that offers stock options! Yay!

My company allows employees to exercise their stock options early — giving me the ability to buy up to $80,000 worth of stock options today, rather than waiting for my full, 4-year vesting period. I’d like to exercise now so I can minimize my AMT, but I have no idea how to come up with $80,000.

I could probably save $20,000 over the next 6 months and buy a quarter of my stock options, but it’ll take years to save the full $80,000 I need. I worry that by the time I have the money, the value of my stock options will rise so much that they’ll be even more expensive to exercise, given AMT.

How do new grads afford to buy their stock options?

- Anonymous

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Dear Anonymous,

You’re facing a classic problem that so many startup employees face, no matter the stage in their career — how do I come up with the money I need to exercise my stock options?

New grads are offered stock options at a time in their career where money is especially tight — in 2021, the average person graduated college with nearly $30,000 in student debt. Add that to the high cost of living in startup hubs like Silicon Valley, Seattle, and New York, and new grads can have very little money left over at the end of the month to invest.

In short, I empathize with your situation.

New grads buy their stock options the same way everyone does: They either save their own money, borrow money from friends and family, take out a traditional loan, try to sell a portion of their shares on a secondary market, or explore non-recourse stock option financing from a company like Secfi.

It’s not an easy decision to make, and it’s one of the big reasons why we started Secfi in the first place. Our founders had been working at a successful startup and were surprised to find that they owed incredibly high tax bills when it was time to exercise their stock options. Without a good financing method available to them, they ended up losing most of their stock options in that company.

I’d suggest taking a closer look at your various financing options, weighing the risks, and building a plan for your equity.

- Vieje Piauwasdy, Director of Equity Strategy, Secfi

Do you have a question about your stock options? Email us at ask@secfi.com