IPO (Initial Public Offering)
Definition
The process of a private company listing its shares on a public stock exchange (NYSE, NASDAQ) for the first time. After an IPO, shares become freely tradeable (subject to the lock-up period). For employees, an IPO typically triggers RSU settlement, enables cashless exercise of options, and provides the first opportunity for true liquidity.
Real-World Example
Your company IPOs at $25/share. You have 20,000 vested options with a $3 strike. After the 6-month lock-up period expires, you can exercise and sell. Your pre-tax profit: 20,000 x ($25 - $3) = $440,000. If you also have RSUs, they settle and you receive shares (minus tax withholding).
Common Mistake
Selling everything on the first day the lock-up expires. The period right after lock-up expiration often sees a dip as employees flood the market with sell orders. Having a planned selling strategy (selling over time rather than all at once) usually produces better results.
Why It Matters
An IPO is the most common path to a significant equity payday. Understanding the lock-up period, tax implications, and selling strategy can make a six-figure difference in your actual take-home amount.
Related Terms
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