When Frederik Mijnhardt needed advice on his stock options, he turned to an unlikely source: Reddit.
It was 2016, and he was considering leaving his employer. Like some other employees exiting a company, Mijnhardt faced a lot of questions when it came to his equity compensation, and just the industry-standard 90-day exercise window to get answers to them: Should he exercise his options? What are the tax implications of exercising stock options? How is the company doing? What happens if it fails? What are the most likely outcomes?
With the clock ticking, he turned to all sorts of unlikely research sources.
“I read my stock option agreement—not just skimmed through it, but properly read it—but there were a bunch of terms in there that I’d never heard of,” he says. “I started to Google and read and jump from Investopedia to Reddit to you name it. That's how I pieced together information to come up with the best decision.”
After weeks of digging, Mijnhardt reached a point where he was happy with his decision—but it was a long, confusing and laborious process. If he had to endure it, he suspected others would, too. He began talking to his colleagues, asking what they knew about their stock options. The response confirmed his worst fears.
“Holy moly, nobody actually understands this,” he says. “It's not just us. Nobody gets it.”
That epiphany led to a project that would eventually grow into Mijnhardt’s company, Secfi. But before he could jump into business, there was more work to be done in order to unpack the equity compensation challenges facing employees.
Talking to his colleagues and peers, Mijnhardt discovered employees were facing two different problems. First, education. Few employees have deep equity compensation administration knowledge, he says. They know they have stock options but not necessarily what that means in practice.
Although the standard of in-house equity compensation education has improved since 2016, Mijnhardt believes companies are poorly positioned to deliver in-depth advice.
“Making a good decision as an individual is related to your personal situation,” Mijnhardt explains. “How much money do you have? What are your personal circumstances? What are your tax implications? Your employer doesn't necessarily know—and arguably shouldn’t know—many of those things.”
He envisioned a third party that could ask all the questions that employers couldn’t. They could dive into the minutiae of each individual’s circumstances. They could ask about their current financial situation and future plans. They could help employees make the right decision for them.
At least, in theory.
The second problem Mijnhardt discovered was money. To exercise stock options, employees need cash—both to buy the stock and pay the associated taxes. In high-growth companies, employees could easily need tens or hundreds of thousands of dollars.
Mijnhardt’s solution was to connect cash-strapped employees with investors. By stumping up the cash, the investor shouldered the risk, while allowing the employee to exercise their options early.
“If it goes well, you pay back the investor plus a return,” he explains. “If it goes wrong, the investor takes the downside risk. It makes the decision to invest a large amount of money a lot easier. It's not your lifetime’s savings at stake, which was often the case for these employees.”
Those two challenges and solutions formed the basis for Secfi, which Mijnhardt founded in early 2017. Over the past five years, the startup equity compensation planning and finance company helped more than 20,000 employees make better decisions. As more organizations turn to equity compensation as a recruitment and retention lever, Mijnhardt says his services have never been in higher demand.
- Why third parties may give advice that employers can’t: “Is the company going to go bankrupt or grow 10X? The company doesn't want to take either stance. The company can't tell all its employees, ’We are definitely going to be worth $10 billion. You should exercise now.’ What happens if it doesn't?”
- How equity compensation decisions vary from person to person: “[Our goal is to help people] make the right decision for them and that is not always exercising. Sometimes it's better to not exercise. Sometimes it's better to wait two years and see what's going to happen. It depends on the individual. ”