Welcome to the final part in the Klaviyo IPO blog mini-series! This blog wraps everything together at a high-level so you can feel as prepared as possible for the Klaviyo IPO. If you haven’t read part 1 (What to expect with Klaviyo’s IPO), part 2 (5 mistakes to avoid) and part 3 (Creating a plan for your RSUs, ISOs + NSOs) then I highly recommend going back and reading those blogs since it will provide valuable context for this blog.
Klaviyo went public on September 20th, 2023 at $30/share, but the lock-up won’t end until March of 2024. Even at that point, Klaviyo employees will be subject to open trading windows which means you may not know exactly when you can finally cash-out on some of your equity.
The good news is you have time to get your ducks in a row. The bad news is you have no idea how much your equity could be worth. The emotional rollercoaster of an IPO is real – in the first few weeks since Klaviyo went public, the price has already swung significantly (up to $36 and down to $31 a few days later) and these (very common) price swings can certainly take a toll on your mental health.
As a Klaviyo employee, the best thing you can do in preparation for the lock-up ending is:
- Get clear on your “why” – connect the Klaviyo IPO to your life goals
- Educate yourself about the key decisions & risks with your RSUs, ISOs + NSOs
- Get your financial team in place by working with a financial planner and a CPA
These points have already been discussed in detail from prior blogs, so we’ll purposefully keep it high-level.
Get clear on your “why” – connect the Klaviyo IPO to your life goals
As outlined in the first Klaviyo blog, the most impactful part of planning for the Klaviyo IPO is to get clear of what an ideal life looks like, so you can create a “why” for this IPO.
In other words… what’s this money for? The more detailed, the better. This will create a grounding, values-based way to make decisions with your Klaviyo equity that is aimed at maximizing your life, and not just your net worth.
Sometimes, the best financial planning decision may not be the most tax-optimized decision… and that’s okay! For example, you may have ISOs that you could exercise and hold for a year in order to potentially pay less tax. However, if that money is needed for a specific life goal… is the tax savings worth the risk of being exposed to the Klaviyo stock price for another year? Possibly not.
This “why” will create the lens through which you can view your Klaviyo equity, especially when decisions need to be made and emotions are running high… and the best time to do this is before the lock-up period ends in March 2024.
Educate yourself on the key decisions & risks with RSUs, ISOs + NSOs
As outlined in the third Klaviyo blog, RSUs, ISOs and NSOs all have their own tax rules, key decisions and benefits. If you are new to equity compensation, the terminology can sound like Greek! The second Klaviyo blog outlines some key mistakes that we often see with IPOs and unfortunately, the mistakes usually boil down to tax surprises.
You can think of your RSUs like a cash bonus, except the bonus is paid in stock that you need to sell first, instead of the cash first going into your bank account. Upon vesting of your RSUs, there is no tax benefit to holding the stock – RSUs are taxed fully (just like a cash bonus) upon vesting. You may still decide to hold the stock because you want the exposure, but avoid doing so because you think you will avoid taxes.
In addition, when your RSUs vest, there is a high risk that you may have taxes under-withheld due to a statutory 22% federal withholding rate on RSUs, unless you elected a different withholding during the lock-up. If your effective federal tax rate is greater than 22%, then you will likely owe taxes upon filing your 2024 tax return which you’ll want to plan for.
For your ISOs, there are many nuances to pay attention to. If you are an early employee at Klaviyo and you exercised ISOs a while back, you’ll want to explore whether your shares are eligible for “Qualified Small Business Stock” or “QSBS”. If your shares are QSBS-eligible, this means your entire gain may be federal and state tax-free – this can be life changing money.
If you have unexercised ISOs, then you likely want to evaluate whether you’d like to exercise the shares and hold for a year in order to pay a potentially lower tax vs. exercising and selling the shares right away. If you decide to “bet” on exercising and holding shares for a year, then you’ll want to carefully plan for any “alternative minimum tax” or “AMT” that may be due. If you have previously exercised ISOs, remember that no tax will be withheld upon selling your shares.
For your NSOs, you’ll want to evaluate when exercising and selling the NSOs will make sense. Unlike ISOs, there is no tax benefit to holding NSOs after exercise. However, the full value of the NSOs will be treated as taxable income in the year of exercise, so you want to pay close attention to what tax bracket you are in and plan the exercise accordingly.
Hire the right financial team for you
With the Klaviyo IPO, the strategy for your equity carries high stakes – both from a technical perspective, but also a life perspective. The cost of making mistakes can be huge!
Every Klaviyo employee should have a different strategy for their Klaviyo equity because their lives are completely different. There is no one-size-fits-all approach for your equity compensation. Everyone is playing a different game with different rules, even when it appears on the surface there is commonality.
This is where the right financial team can be invaluable to you. Hiring a financial planner and a CPA to help guide your decisions will ensure you are making life-centered and tax-efficient decisions with your Klaviyo equity. While CPAs will focus exclusively on taxes, a financial planner will provide comprehensive, holistic advice on all aspects of your financial life, such as:
- Creating the “why” for your money
- Cash flow planning
- Debt planning
- Investment strategy & execution
- Equity compensation
- Tax planning
- Education planning
- Employee benefit & insurance planning
- Business planning
- Estate planning
- ….and more!
If you haven’t worked with a financial planner before, then I highly recommend reading this blog. It will outline the different types of financial planners and why we believe working with an independent (not attached to a bank, broker or insurance company), fee-only (meaning they only get paid by you) will make the most sense for you. A good financial planner will feel like having a personal CFO for your family.
Financial planners will also often have a close network of CPAs they work with so they can coordinate together on the various tax strategies and nuances of your equity compensation. Having this coordinated team will provide you with peace of mind that you are making the most informed decisions, while also ensuring you are avoiding any type of tax surprise along the way.
The Klaviyo IPO can provide life changing money, especially if the price increases from here. It can also have little impact on your life if the price goes down. This type of “sudden liquidity” can actually be quite challenging to plan for – from a financial, but also psychological perspective.
As a Klaviyo employee, you’ve likely been exposed to new terminology, decisions, risks, etc. which can be quite stressful. Your financial life instantly became more complicated overnight after the IPO occurred. With the right help and proper planning, you can go into 2024 with a life-centered, tax-optimized plan for your equity so you can feel fully prepared when the lockup is lifted in March 2024.
Now go get started with your planning!
About Experience Your Wealth, LLC
EYW was established in 2019 – our home “offices” are based in Rhode Island (Jake), Tennessee (Marie) and Arizona (Mike + Lillian) as we operate remotely and work with clients from all around the US.
We provide virtual, fee-only financial planning services to travel-loving young families who don’t buy into the traditional “9-5, work-until-you’re-65” concept. We help you find the responsible balance between paying down debt, investing for the future, but also experiencing life now.
We have deep expertise as it relates to equity compensation, including existing knowledge & familiarity with Klaviyo’s equity.
Our team includes Certified Financial Planners (CFP®), Certified Student Loan Professionals (CSLP®), a Chartered Financial Analyst (CFA) and a former Certified Public Accountant (CPA) as we love to nerd-out on the technical side of financial planning, but our true passion lays with the “personal” side of personal finance – helping our clients articulate & visualize their dream life and then best align their financial decisions with their life.
We’re shaking up the financial planning industry by bringing modern, life-centered financial planning advice and personal CFO-level service to our clients. We are completely remote, paperless and meet clients over Zoom with frequent guest appearances from kids, dogs, cats and whatever fun animals that may be around your home.
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