The Vested Dilemma: Sell Everything or Sell Slowly?
Raanan Cohen, a startup founder, urges employees and entrepreneurs to sell vested shares immediately upon maturity. He argues that waiting for "just a little more" is a dangerous illusion that often leads to significant financial loss.
"Everything you have Vested, sell." This is the sweeping advice that Raanan Cohen gives today to almost every employee or entrepreneur who reaches a crossroads where they can realize shares or options. It doesn't matter if it's a young startup or Nvidia, and it doesn't matter how promising the company's future seems.
Cohen has already been on the other side of this decision: he could have sold shares in a company he founded for $10 million, decided to wait for more, and watched the money disappear. Since then, he has been trying to convince others not to make the same mistake. Two weeks ago, Cohen participated in the "Psychology of Money" podcast, where he formulated his advice without many reservations: "Everything you have Vested (shares that have matured and become available), sell, no matter if it went down or up. Sell and invest it in something else. The mechanisms always ensure that the employee has more equity that is unvested, so they don't lose the upside."
The "Just a Little More" Trap
"When an employee is in a hot company and has equity that can pay off their mortgage, they say: 'Why should I pay off the mortgage and take it out if in a moment it will be worth a penthouse?', and if they have the penthouse, then they say: 'I'll leave it on the roulette wheel so it becomes a villa. Just a little more and that's it.' This is the hedonic adaptation we live in, and the number is constantly moving."
"Just a little more and that's it" is the name of the book Cohen published last year. Behind his firm advice lies a personal story in which that "little more" cost him, at least on paper, $10 million. Cohen founded MobileMax, which developed software for discounted international cellular calls, and went public in 2007. When the company was in excellent condition, he refused to sell his shares, convinced it would reach a billion-dollar valuation. However, the market changed, MobileMax crashed, and the shares lost their value. Cohen was left without money, with four children and a mortgage.
Concentration Risk
Cohen argues that high-tech employees tend not to appreciate how exposed they are to the company they work for. Anyone who receives both a salary and shares or options from it is concentrating too much of their economic life in one place.
"Employees in high-tech are not aware that they are doubling down on the risk of the company they are in. If the company fails, not only will my options crash, but also my sources of income. Therefore, if there is something vested, take it off the table, and if you still want to invest it, then diversify," he insists.
The Alternative: The "Drip" Strategy
Devorah Cohen, a financial planner and owner of a Family Office, disagrees with Raanan's sweeping approach. She suggests creating a plan for a gradual sale over a set period.
"The idea is to disconnect the psychology and decide on a strategic plan of 'dripping,' it could be over a year, two, three, and decide that blindly, no matter what the price of the share is, we sell X shares once a quarter. We want to average some rate over a period," she explains. According to her, this approach neutralizes psychological pressure and avoids the regrets that can haunt people for a lifetime.
