First, if you’re a Snowflake employee, congrats on the IPO! Second, you face big decisions in the coming weeks on what to do with your SNOW employee equity. If you’ve earned Incentive Stock Options (ISOs) or Restricted Stock Units (RSUs), you’ll likely have the opportunity to sell 25% of your vested equity in mid-December.
This article will guide you on what you should do to make the most of your hard-earned equity. As a financial planner that specializes in helping Silicon Valley tech professionals with equity, I’m currently helping other Snowflake employees navigate this process so I wanted to share some tips with you.
Identify any near-term valid cash needs and immediately sell enough of your SNOW to cover those.
By near-term, I mean any cash that you’ll need to use in the next 1-2 years. An example of a near-term valid cash need would be setting aside a tax reserve to pay taxes on your vested RSUs. Another example would be a down payment if you’re planning to buy a house in the next 1-2 years.
Decide if you want to hold on to any of your SNOW for the long-term and how much.
If you believe in the long-term future of the company and want to continue to hold a stake in it, then you should decide what percent of your total SNOW holding you want to keep and set that equity aside. I typically recommend to my clients that they only keep 10-20% of their total holdings for the long-term at most since there is lots more risk and volatility in holding a single company stock versus a broadly diversified portfolio.
Develop a selling plan for your remaining SNOW ISOs or RSUs.
After you’ve sold enough of your SNOW to cover your near-term valid cash needs and decided how much SNOW you want to hold for the long-term, you need to develop a selling plan for your remaining SNOW. There are two ways I recommend my clients do this:
- Sell immediately
- Sell over time.
How these two approaches work
Sell as much as of your SNOW as soon as you can. Clients who choose this way want to reduce the much greater risk and volatility of holding a single company stock. There is also data from past tech IPOs that shows that on average this is the way to get the most out of your employee equity.
Sell over time on a schedule
Many of my clients can’t get comfortable selling all their equity immediately. With those clients, I recommend they sell over time on a schedule. For example, you could sell 10% of your total SNOW holdings every quarter for 10 quarters. One key benefit of this approach is that you know you won’t happen to pick the single wrong day to sell at a low price because the price will likely go up and down over time.
Another benefit is that you can reduce your taxes by spreading out your gains over multiple tax years. Finally, you can minimize your emotions by putting this on autopilot and selling every quarter and stop trying to decide if it’s the right time to sell. After you sell, I recommend you use your SNOW proceeds to achieve your financial goals which could include buying a house, paying for college, or planning for retirement.
You can make the most of your SNOW by following these three steps:
- Identify near-term valid cash needs and sell SNOW immediately to cover.
- Decide if you want to hold any of your SNOW for the long-term and how much.
- Develop a selling plan for your remaining SNOW.
If you’re a Snowflake employee and you have questions or want to discuss your specific situation, please schedule a free virtual consultation.
After 20 years working for companies including eBay, Yahoo!, Intuit, and startups, I made a career change into the financial world as a fee-only financial planner 9 years ago. I earned my CFP®, spent a few years at a boutique fee-only firm in San Jose, worked 2 1/2 years at a leading wealth management firm in San Francisco, and then left to build the firm I wish had existed when I was working as a tech professional.
My mission is to help other Silicon Valley professionals make the most of their employee equity to help them reach their financial goals.