Pre-IPO liquidity planning: Evaluating options ahead of the IPO

Your company has been on a winning streak and has just filed for an IPO. For you and your colleagues, that equity may now represent wealth with the potential to transform your financial future. So what comes next?

The opportunity to hold significant equity in a pre-IPO company was once reserved for relatively few individuals, typically a small group of founders and early executives. Today, companies are staying private longer, scaling further before going public and extending equity participation across a wider set of employees. The wealth creation during the startup-to-IPO path now often includes hundreds of individuals across the organization.

The pre-IPO stage is a unique moment for those involved and introduces important financial considerations. Tax obligations, liquidity timing, regulatory realities and access to capital all require increased attention. Meanwhile, the value of the equity is concentrated, rapidly changing and closely tied to how and when the company ultimately goes public.

As a potential liquidity event approaches, it can help to start by defining a baseline level of financial autonomy. In the pre-IPO context, that may mean understanding the liquidity, capital and financial flexibility needed to support anticipated obligations and upcoming decisions. Once that baseline is established, decisions surrounding option exercises, borrowing, liquidity access and tax obligations can become more straightforward. This article outlines how to define that baseline and how decisions made now can help preserve the value created through equity.

Defining a baseline level of financial autonomy

The pre-IPO moment often marks the point where years of work begin to translate into something tangible. Equity that has existed as a paper value starts to take on real financial significance and decisions that once felt distant become immediate. As an IPO approaches, individuals often find themselves evaluating how future liquidity, tax obligations and financing needs may intersect with a concentrated equity position.

Financial autonomy will look different for each individual, but at its core, it reflects having sufficient resources and flexibility to make important financial decisions without relying exclusively on a future liquidity event. Establishing that baseline can help inform decisions surrounding borrowing, option exercises, tax obligations and access to captial before and after an IPO.

Establishing that baseline begins with a clear accounting of near-term and long-term priorities. For many, this includes:

• Expected tax obligations associated with stock option exercises, share sales or other liquidity events
• Capital that may be required to exercise stock options before liquidity is available
• Existing liabilities, including mortgages, lines of credit or other borrowing needs
• Near-term liquidity requirements and anticipated cash flow needs
• Access to financing solutions that may help bridge the period before liquidity becomes available

Beyond these defined needs, some may also incorporate a margin for flexibility, acknowledging that circumstances, obligations and priorities can change over time.

This is also a period when an experienced guidance can be particularly valuable. Decisions involving option exercises, liquidity access, lending strategies and evolving tax obligations are often interconnected. The relationship managers at Citizens Private Bank regularly work with pre-IPO individuals to help evaluate these considerations and understand available financial solutions before and after a liquidity event.

The mechanics of the pre-IPO period

Before an IPO, the equity held by employees will likely comprise different types of securities instruments. To understand planning options, it may help to step back and review what instruments may be held and how those holdings work in practice.

Common pre-IPO equity instruments

Common stock. Founders and some early executives often hold common shares outright. These shares represent direct ownership in the company, but they generally cannot be freely sold prior to an IPO and are typically subject to transfer restrictions, lockups and holding requirements once the company is public. While the value may be substantial, timing and access remain constrained.

Stock options. Stock options grant the right to purchase common shares at a fixed exercise price. They generally fall into two categories, each with different implications. Understanding the tax implications of ISOs vs NSOs can help employees evaluate when to exercise stock options before IPO and how those decisions may affect future liquidity.

Incentive Stock Options (ISOs). ISOs are typically granted to employees and can offer favorable tax treatment if specific holding requirements are met. Many employees exercise these options as valuations increase. What often comes next is less clear to employees. Holding the shares for at least one year after exercise and two years from the grant date is what allows those gains to be treated as long-term capital gains rather than ordinary income.

Nonqualified Stock Options (NSOs). NSOs are more flexible in who can receive them, including executives, advisors and directors. Exercising NSOs generally triggers ordinary income tax on the difference between the exercise price and the fair market value at the time of exercise. As a result, exercising NSOs often requires planning for both cash needs and tax obligations before liquidity is available.

Restricted stock units (RSUs). Restricted stock units represent a promise to deliver shares in the future, typically upon vesting and, in some cases, a liquidity event. As an IPO approaches, RSUs can represent meaningful future value even though the underlying shares may not yet be issued or accessible.

Key considerations for pre-IPO decisions

As a company approaches the public markets, personal planning decisions often become more connected and more time-sensitive. Understanding how tax treatment, liquidity access, compliance requirements and lockup timelines interact can help individuals evaluate their options before key deadlines begin to narrow.

Tax treatment. Different equity instruments carry different tax implications depending on when they are exercised, settled or ultimately sold. Decisions made before an IPO can be governed by different tax dynamics than those made afterward, making timing and sequencing especially important.

Liquidity access. Before an IPO, equity is typically illiquid but privately held, which can allow for more flexibility in how access to value is structured. After the IPO, liquidity may increase over time, but it often does so within a different set of rules and timelines.

Regulatory and compliance realities. As a company prepares to enter public markets, disclosure obligations, trading policies and approval requirements begin to influence when personal financial actions can occur. These factors can affect execution once they are in place.

Lockups and timing constraints. Post-IPO lockups and blackout windows can limit access to liquidity for extended periods, even after the company is public. These constraints are a normal part of the transition, but they can feel more immediate when personal milestones or financial needs arise. IPO lockup period planning can help individuals account for those windows before liquidity is needed.

Each equity instrument carries value along with its own rules and tradeoffs. In practice, decisions around exercise, holding periods, liquidity access and timing are rarely isolated. A choice made in one area can directly affect outcomes in another, particularly as companies move closer to public markets and additional constraints begin to apply.

Engaging with experienced advisors at this stage can help bring those decisions into sequence, align tax and liquidity considerations and ensure that early actions support longer-term financial objectives.

Common planning considerations during the pre-IPO phase

Early planning can help you prepare for the range of timelines that develop both leading up to an IPO and during the lockup period. Common planning considerations during this phase include:

• Evaluating borrowing capacity and financing options before public-company restrictions or lockup periods take effect.
• Assessing available liquidity relative to anticipated tax obligations, option exercises and near-term funding needs.
• Reviewing how assets and liabilities are positioned ahead of public company trading policies, disclosure requirements and lockup periods.
• Determining whether future liquidity needs are likely to arise before shares can be sold.
• Sequencing decisions so that certain actions can be established while the company remains private, even if execution occurs later.

Addressing these considerations early reduces the likelihood that important decisions are driven by timing constraints once the company goes public. With this groundwork in place, a practical question arises: how and when do you access equity value in a way that supports financial objectives while maintaining continued participation in the company's growth?

Accessing pre-IPO liquidity

In the pre-IPO period, employees with significant equity often experience meaningful paper wealth that is not yet transferable. With a baseline level of financial autonomy already defined, accessing capital can be aligned to specific, known needs rather than driven by availability alone. Without that context, borrowing against equity can introduce additional exposure, particularly if timing, market conditions or liquidity windows shift.

In many cases, the need for pre-IPO liquidity can be addressed through pre-IPO lending or liquidity solutions that do not require selling shares. These approaches are designed to provide access to capital while maintaining ownership and continued participation in future appreciation.

Common liquidity approaches during the pre-IPO phase may include:

• Structuring lending to support option exercises and related tax obligations when liquidity from share sales is not yet available.
• Funding major purchases such as homes or refinancing existing obligations in a way that avoids reliance on future trading windows.
• Establishing credit capacity ahead of an IPO so liquidity is available when needed.

Accessing liquidity selectively can also serve a practical purpose beyond meeting immediate financial needs. When implemented thoughtfully, pre-IPO liquidity solutions support near-term priorities while preserving long-term exposure to the company's growth.

The importance of the right team

Liquidity decisions often affect more than one dimension of the personal balance sheet and pre-IPO planning, in particular, can include interconnected tax, legal and banking considerations.

A lending structure may influence tax timing. An option exercise may affect tax obligations. Borrowing decisions may affect liquidity flexibility and access to captial.

Founders and executives who work with coordinated advisory teams earlier in the process often benefit from:

• Better alignment across tax, legal and banking considerations.
• Fewer decisions driven by lockups, blackout periods or compliance approvals.
• The ability to evaluate liquidity options within the context of the full personal balance sheet.
• Greater confidence that decisions taken in one area do not create unintended consequences in another.

Having the right team in place also helps maintain continuity as a company moves into the public markets. A team that already understands equity structure, financing priorities and liquidity strategies is better equipped to guide decisions as new rules and timelines take effect.

Final thoughts: Positioned for what comes next

Reaching the pre-IPO stage reflects years of successful execution and steady leadership. For founders, executives and employees who stand to benefit, it marks a shared career passage.

It is also the point at which equity transitions from a source of potential value to a foundation for important financial decisions. For those moving through this transition, having a partner who understands private company equity, pre-IPO dynamics, liquidity planning and financing considerations can bring steadiness to an otherwise complex period.

Citizens Private Bank works alongside clients before, during and after liquidity events, helping them remain well positioned as they enter their next chapter. To learn how a Citizens Private Bank relationship manager can help you plan ahead of an IPO and beyond, connect with a member of our team.