Selling private shares of current employer

[Off the Wheel]

Hello,

Looking for some advice!

I'm currently employed in a mid-sized start up with plans of an exit event (going public or taking in a big investment round) in ~3 years. I have ~40,000 options in the company at a strike price of a $1, as well as 10,000 shares that I purchased 2 years ago at that same price. I currently am a salaried employee, with no plans to leave the company, and my income from them represents 22% of our gross monthly income.

My boss reached out this week to let me know they have plans to sell a small stake in the company to strategic investors in the next few months, and that existing shareholders are welcome to include their shares in the potential sale. He's looking for a price of $10+/share, so the 10,000 I have purchased could be worth $100,000 (pre-tax.)

I'm not sure whether I should move forward and sell those shares in order to further diversify (since I already have and will keep my 40,000 options and my salary) or whether I should keep the shares.

All private company shares are a gamble, but our current relatively measured vision is that these shares could be worth up to $30/each in ~3 years. That's based on almost 10 years of trend, but who knows what could happen.

I am Canadian, in BC. We currently have as high an income for a household as we're likely to have pre-retirement, so I am somewhat concerned about the tax implications. From my research, 50% of the capital gains will be taxed at my marginal tax rate - so about 30% on $45,000, meaning we'd net ~$86K if I've done my calculations correctly. I am only working part time (60% of my full time hours and income) so my tax hit would be lower than if I was working full time, but I'm not entirely sure if I will work more or less pre-retirement. Likely not more.)

Some more information:
* We don't have a mortgage
* We will max out our tax-sheltered accounts regardless
* We don't have any specific needs for the funds, so would just invest the proceeds more broadly in the market in a non-registered account

TLDR: should I sell private shares in order to further diversify from my employer in order to invest in a general index fund, or should I keep them since they're likely to be worth more in ~3 years?

[seattlecyclone]

I think diversification sounds like a good idea in your situation. You'll be able to get a good payoff from the shares you've already purchased, and your existing options still give you plenty of upside for in case the stock does go up more due to your team's hard work over the next several years.

[Michael in ABQ]

A bird in the hand is worth two (or in this case three) in the bush.

I would take some chips off the table. Sure, you may miss out on some upside, but what if something changes and now those 40,000 shares aren't even worth $10 each?

[Off the Wheel]

Hi both, I appreciate your replies! I decided to go ahead and sell 90% of the shares. :)

[2sk22]

Hi both, I appreciate your replies! I decided to go ahead and sell 90% of the shares. :)

You did the right thing. Even if the very best case happens and your company goes public, there is no guarantee that your shares will actually be worth anything. The investors are the first to make any money and then after the company goes public, there is a locus period when you can't sell.

[bryan995]

If you sold 90% of the shares; then why stay? Time to more to a new startup with more upside no? :)