How to Prepare for an IPO in 2025: Key Live Event Takeaways
Whether you're months away from going public or just want to be prepared when the time comes, navigating an initial public offering (IPO) can feel overwhelming.
In this recent LIVE webinar, John Owens, CFP®, EA, ECA, CPWA®, Managing Partner at Brooklyn Fi, and Ally Jane Ayers, CFP®, EA, CEP, Co-Founder, cut through the confusion with their signature straight-talk approach. As they pointed out, "That was a relatively simple and stress-free process... said no one ever about an IPO!"
Here are the key takeaways and practical strategies to help you maximize your opportunity during an IPO while avoiding costly mistakes that can derail your financial future.
Key Timestamps:
00:48: Initial Public Offering (IPO) Intro
00:57: IPO Timeline
05:37: Mental Preparation/Expectations
09:15: IPO Prep Steps
11:35: Qualified Small Business Stock (QSBS)
15:15: Gotchas and How to Avoid
20:20: Watch out for THIS (1099 Form Correction)
21:12: Lessons Learned from Past Public Offerings
23:52: Special Purpose Acquisition Company (SPAC)
24:58: What To Know Ahead of Day 1
30:05 Liquidity Event Tips (ISOs, NQOs, and RSUs)
33:33 Liquidity Event Tips (Newer Employee, Double-trigger RSUs)
36:06: Liquidity Event Tips (Opportunities to sell Pre-IPO)
40:28: Pre-IPO Additional Resources
41:23: Q&A
It Starts When It Starts: The IPO Timeline
Waiting Phase
The "waiting forever" period when companies hint at going public
There is a lot of uncertainty
This is your optimal planning time: 12 months to 5 years before an IPO.
Early planning = better position when you start to hear whispers.
Most people wait too long to start planning
Announcement Phase
S-1 filing marks the official intention to go public
The "clusterfuck" phase begins with intense activity
What happens and when depends on your company and outside factors (the markets, politics, etc.).
This is when many reach out for advice from BKFi (but a year ahead is better on the tax prep front).
We’re well-positioned to get you the advice you need, quickly
Multiple stakeholders become involved: investment banks, founders, CFO, advisors, lawyers.
Public Offering
The company transitions from private to public
A typical lockup period follows the IPO (you are unable to transact company shares)
Activate diversification plan and establish ongoing trading strategy
Preparing Yourself for the IPO Process
You Can Expect:
Conflicting information from HR, finance teams, and colleagues will create confusion about trading restrictions and timelines. You'll get contradictory details from multiple sources, making it hard to know what's actually happening during the crucial pre-IPO period.
Last-minute changes and unexpected restrictions often appear days before the IPO, altering your ability to exercise or sell shares. Companies frequently update policies at the last minute, sometimes announcing a trading window only to modify it right before the event.
Transfer agents like Computershare use outdated technology from the 1980s for handling your shares. Your equity will move from systems like Carta to a transfer agent to a brokerage firm—a journey filled with delays and paperwork nightmares.
Account lockouts are almost guaranteed during transitions as platforms suspend your access to equity information. You'll likely be locked out until just before the IPO hits.
Data errors in cost basis, share quantities, and vesting schedules happen when transferring between platforms. These mistakes lead to tax overpayments if not caught, as statements sometimes report $0 cost basis that even accountants miss.
How to Prepare
Save monthly PDF statements of your equity holdings to maintain your record of shares, vesting schedules, and exercise prices. When systems lock you out during transitions, these saved documents will be your only proof of what you own.
Have a clear trading strategy ready before the first window opens to avoid emotional decisions when prices fluctuate. Trading typically doesn't start until around lunchtime on IPO day, so prepare a simple plan in advance for what percentage you'll sell immediately.
Mentally prepare to pay up to 50% in taxes, especially if you're exercising and selling within the same year. Hope for less, but budget for the worst—anything better will be a pleasant surprise rather than a financial emergency.
Keep exercise cash in easily accessible bank accounts where you can quickly send wires or get cashier's checks. Online-only banks often have withdrawal limits that can prevent you from accessing your money when you get that 24-hour notice to exercise or lose your options.
Make sure your ducks are in a row: do all the parties have your updated name and address?
The Nifty Tax Benefit: Qualified Small Business Stock (QSBS)
Section 1202 tax benefit allows you to exclude up to $10 million in capital gains completely tax-free with proper planning. This is arguably the single biggest giveaway in the entire US tax code and worth investigating if your company qualifies.
The list of qualifications is extremely specific. Get legal counsel to confirm your company’s status! Most companies DO NOT QUALIFY.
Company requirements include having less than $50 million in assets when you acquired shares and being a domestic C-Corporation. Many startups qualify early on but lose eligibility after later funding rounds cross the $50M threshold.
You must hold the shares for at least 5 years to get the full benefit, making this a long-term strategy that requires early planning. Exercising ISOs years before an IPO can start this 5-year clock ticking toward tax-free gains.
Confirmation of QSBS status requires company cooperation since your accountant can't verify this alone. Get documentation from your employer stating they met the criteria when you exercised your options.
Even spending a few thousand dollars on legal advice now could save you millions in taxes later. If there's any possibility your shares might qualify, it's worth investigating QSBS eligibility before your company's next funding round.
Potential “Gotcha!” Moments & IPO Strategies to Avoid Them
Gotcha #1: Account Transitions
Your shares will move between multiple platforms (Carta → Transfer Agent like Computershare → Brokerage firms like Morgan Stanley or E-Trade) during pre-IPO preparations, creating a paperwork nightmare despite the technologically advanced nature of going public.
You may get locked out during these transitions, as companies restrict access while shares are being moved and records updated.
Solution: Save monthly PDF statements of your holdings now, including grant dates, vesting schedules, and exercise prices. These documents will be your only proof when data gets lost or misreported during the transfers.
Gotcha #2: Lockup Restrictions
Unexpected restrictions on exercising shares typically emerge 2-4 weeks before the IPO as companies freeze transactions to ensure accurate record-keeping, often with little warning and firm cutoff dates.
Post-IPO lockup periods typically last 3-6 months, preventing you from selling shares even as prices fluctuate dramatically – so don't count on IPO proceeds for immediate purchases like a new home.
Solution: Complete important exercises well before any S-1 filing and develop a comprehensive plan that accounts for these blackout periods. Don't wait until the last minute when options might be off the table.
Gotcha #3: Tax Misconceptions
There's no magic tax solution to make your bill disappear unless you've planned for QSBS qualification 5+ years in advance – most quick fixes promised online simply don't work for significant equity events.
Even with the most favorable long-term capital gains treatment, you'll still pay approximately 24% federal and 14% state tax in high-tax states like California or New York, with ordinary income rates much higher.
Solution: Budget conservatively for a 50% tax rate, especially when exercising and selling within the same year. Any lower rate will be a pleasant surprise rather than experiencing a tax emergency when your bill comes due.
Gotcha #4: Cost Basis Issues
Transfer agents and brokerages routinely report incorrect cost basis information ($0 or wrong amounts) on your 1099 tax forms, even showing the wrong grant type or exercise date data. They are not required to report the cost basis, that’s on YOU!
Unlike obvious $0 cost basis errors, incorrect numbers often go unnoticed by standard accountants, potentially causing you to pay tax twice on the same income – an expensive mistake requiring specialist attention.
Solution: Maintain comprehensive records of all exercises, including dates, amounts paid, and fair market values. Work with advisors who specialize in equity compensation to audit your 1099s, as corrected forms often arrive in March when many have already filed returns.
BKFi Knows How It Goes:
Lessons from Previous IPOs
The stock price may not start moving until lunchtime on IPO day, contrary to expectations. Companies go through "price discovery" with institutional traders establishing market prices, so don't be alarmed when nothing happens immediately after the 9:30 AM bell ringing.
First day of trading often sees the best short-term price due to retail investor excitement and Reddit hype, which sometimes creates an artificial initial spike. This happened with Coinbase where private markets valued shares almost double the public trading price. It was a painful lesson for employees who didn't sell during the brief window.
Beware of "private market" valuations that can anchor unrealistic price expectations before actual trading begins. If you're hearing talk of $650/share on private markets but public markets determine it's worth $300, the public price is the only real one—the rest is just noise until you can actually sell.
Higher-level employees face additional trading restrictions due to material non-public information. If you're in the C-suite or have access to sensitive financial data, you'll likely be unable to trade during regular windows, requiring a 10b5-1 plan to sell shares automatically.
A Word About SPACs
SPACs add significant complexity with longer share conversion times, more paperwork, and greater uncertainty about final valuation. Many companies that went public via SPAC in 2021 (like 23andMe and Barkbox) struggled post-merger, as this route often allows companies to go public before they're truly ready.
Day-of-IPO Checklist
Before the Company IPO: Critical Questions to Answer
Which shares am I allowed to trade and what restrictions apply? Companies often limit employees to selling only a percentage of holdings (like 20%) during the initial trading window, while executives may face blackout periods or additional SEC limitations.
What is my trading plan—will I exercise options, sell existing shares, or use a combination approach? Having a predetermined strategy based on your financial goals rather than market emotions is crucial, as the stock price volatility on IPO day can lead to impulsive decisions.
What logistics need to be arranged, including cash reserves for exercise costs, wire transfer setups, and account access credentials? You might receive an email requiring $25,000 within 24 hours to exercise shares, so have funds readily available in accounts that allow immediate withdrawals.
Where will proceeds from sales go and how will they be invested afterward? Many employees leave proceeds sitting in cash at brokerage accounts for years after an IPO, missing crucial diversification opportunities during the post-IPO volatility.
If you worked internationally, prepare for complex withholding processes that might tie up more cash than expected. Companies often withhold at highest possible rates for multiple countries, requiring tax credits to be claimed later.
How much should be set aside for taxes beyond automatic withholdings? Most companies only withhold 22% for federal taxes on RSUs (until an individual’s income reaches $1 million), despite many employees falling into higher brackets of 32-37% plus state taxes.
Special Considerations by Employee Type
Long-Term Employees with ISOs, NQOs, and RSUs
Multiple equity types create valuable planning opportunities when managed strategically. Having both incentive stock options and RSUs allows you to offset the tax impact of one with the other.
Set a realistic budget for exercises and associated taxes, particularly focusing on how much of your net worth you're willing to risk on one company's stock. Even promising companies can underperform after going public.
Factor Alternative Minimum Tax implications into your exercise strategy, as this parallel tax system can create significant unexpected tax bills when exercising ISOs with large spreads between fair market value and strike price.
Double-trigger RSUs create a surge of taxable income at IPO as years of accumulated equity suddenly vest at once, potentially pushing you into higher tax brackets and requiring substantial tax reserves. This is also an AWESOME planning opportunity if you have Incentive Stock Options as well (or maybe your spouse does!?).
Newer Employees with Double-Trigger RSUs
Understand the two-phase vesting requirements: 1) time-based vesting through continued employment and 2) the liquidity event trigger that occurs at IPO, causing potentially years of accumulated RSUs to vest simultaneously.
Be aware that automatic tax withholding is typically only 22% at the federal level up to $1 million of income, despite many employees actually falling into 32-37% tax brackets plus state taxes, creating a significant withholding shortfall.
Plan for these withholding shortfalls by maintaining additional cash reserves or making estimated tax payments, as the gap between withheld taxes and actual liability can run into tens of thousands of dollars.
Consult with your company about increasing your withholding percentage if possible, as some companies offer this option to help employees avoid tax surprises and penalties for underpayment.
Tender Offers and Secondary Sales
Tender offers provide rare, valuable opportunities to get liquidity before an IPO, typically allowing the sale of up to 20% of holdings to new investors while the company is still private.
These sales help reduce concentration risk early, allowing you to diversify while still maintaining significant upside potential in your remaining shares. Most employees regret not participating in tender offers when available.
Company restrictions often limit secondary sales, requiring specific company approval rather than allowing direct sales to random buyers. The company typically doesn't want random people on their cap table.
Forward contracts offer an alternative for those leaving the company but wanting to retain upside, allowing third parties to front exercise costs in exchange for a percentage of future gains (typically 20-30%).
Platforms like EquityZen, Forge, and ESO Fund can facilitate these transactions, but they add tax complexity requiring specialist tax preparation. The benefit is keeping some portion of potential gains versus losing options entirely when departing.
Ready for your Company’s IPO?
Next Steps
Whether you're a year from an IPO or just received an email about a potential liquidity event, Brooklyn Fi can help navigate the complexities. Visit brooklynfi.com/equityed for our comprehensive equity education series or brooklynfi.com/discovery to book a call with our team.
Our podcast, The Liquidity Event, also covers these topics in depth for those who want to learn more about preparing for IPOs and other liquidity events.
Need more IPO planning help?