The Insider's Guide to the IPO Market
By AJ Ayers, CEP, CFP®, EA
Greetings from the Silicon Valley Chapter meetings of the NASPP! This is an industry conference for the folks that administer your company stock plans, grant your equity, help you sell shares, and make sure your taxes are withheld correctly. As you know, Brooklyn FI has a very specific and unique niche of equity compensation, and this event is where equity compensation plans are designed, SEC rules are proposed, and stock plan administrators swap horror stories. And I was lucky enough to have a front-row seat!
For some context: In 2020 I became a Certified Equity Professional. This is not a typical designation for a financial planner because it goes WAY deep on equity compensation. I was curious to learn what the actual stock plan administrators know. Now, all Brooklyn FI financial planners either hold the designation or are studying for the first level of the Certified Equity Professional exam. Curiosity is one of our core values here so our team is always looking to be on the cutting edge of equity compensation law and procedure changes.
So anyways, about 200 stock plan administrators and industry insiders met on the beautiful campus at Santa Clara University in San Jose, California last week. The mood was very positive despite a desolate IPO market in 2022. Stats were flung around in various presentations on the state of the market. The most striking one to me was the dramatic drop-off in IPOs after such an incredible 2021. Last year there were 383 IPOs, 618 SPACs, 302 De-SPACs, and 7 DPOs. In 2022, there’s been diddly squat. If you listen to our podcast, you know this is very much top of mind for us here at Brooklyn FI.
Here’s a roundup of the interesting things I overheard and absorbed.
Stock plan experts warned that many companies are ill-equipped to handle a SPAC transaction. One expert called all private companies considering a SPAC merger “immature in their processes and procedures.” Wow, way harsh.
On the subject of donating appreciated stock and gifting to family members, one advisor remarked: “I encourage people to give with warm hands, not cold” – I liked that sentiment a lot. We talk about that here with clients when it comes to leaving a legacy or spending what you have on things you love. In short: give often and while you’re alive, not when you’re dead
More on donating equity: check out Overflow – a platform for your company to make it easy for you to donate your equity.
The IPO bonanza of 2020 and 2021 is likely to return after this cooling-off period, so stock plan administrators need to be ready to spring back into action.
If your company’s IPO is delayed, use this time to shore up and prepare.
Get your equity plan ready for being a publicly traded company
Remove early exercise provisions, they are a nightmare to maintain once public
Add an Evergreen ESPP plan – there was lots of support for this strategy
Evergreen provisions in plans avoid cumbersome shareholder votes in the future – must be in place at the plan's outset
It was a joy to meet so many people who are as nerdy about stock options as I am. In the end, the first half of 2022 has been a literal desert for IPOs. We’ll see what the back half of the year brings.