This is a truly hypothetical situation to understand how one should approach some Pre-IPO companies.
Let's say I'm joining a Pre-IPO company (let's say Slack for example) before it goes public.
Let's say the current stock price in the private market is: $100.
Let's say I'm offered 4000 RSUs, vesting over 4 years on a quarterly vesting schedule (to make calculations easier). 1000 units($100k) per year, 250 units ($25k) per quarter.
So at the end of my first quarter, I will have 250 - 250*40% = 150 units (let's say company is withholding 40%).
Based on this hypothesis, here is what I don't clearly understand:
1. I should have $25000 worth of RSU if the company has not gone public yet. Will I owe any taxes on thess $25k yet since I haven't entertained any capital gain yet?
2. If the company *did* go public after 2 months of joining, what will happen if the stock price fell 20% to $80 on IPO week, and hovered around 25% below the last private valuation to $75 after 6 months? (8 months after joining)
Am I in a better position if I join in the Pre-IPO stage and the ipo goes sideways like LYFT and UBER?
What will be the case if the IPO goes successfully like ZOOM?
Sorry for a lot of hypothesis. I would really appreciate some serious guidance on any of these questions or if you can point me to good resources, that would be much appreciated too. (I'm researching on my own as well). Ideally if I can gather enough helpful information, I'd like to create an open source tool to help fellow engineers in similar situations.
(Trolls are welcome too, just share the knowledge at least.)
The risk with owning pre ipo stocks is if something like Lyft or Uber IPOs happen to you. If your withholding rate is lower than actual tax rate, and IPO price is much higher than price after lockup, you will owe a hefty sum come tax season. You'll end up selling a huge chunk of your RSUs to pay those taxes.