The Tech Employee's Equity Playbook.
RSUs, ISOs, and tender offers.
A practical guide to the three equity decisions that move your after-tax outcome the most, and the mistakes that are most expensive. Built from a decade of working with senior Bay Area tech employees.
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Your equity is your biggest financial decision. Treat it like one.
If you work in tech, your equity compensation is probably the most significant wealth-building opportunity you will ever have. It is also the most complicated, and the most likely to cost you if you are not paying attention.
Most tech employees spend more time negotiating their equity grant than they do managing it afterward. RSUs vest and get sold automatically. ISO exercise windows get missed. Tender offers come and go without a clear decision framework. And taxes, on all of it, arrive in April as a surprise.
This guide is designed to change that. It covers the three forms of equity compensation most common in Bay Area tech, RSUs, ISOs, and tender offers, with a focus on the decisions that actually matter.
It will not tell you what the market is going to do. It will help you make better decisions with what you already have.
The tech employees who build lasting wealth from equity are not the ones who got the best grants. They are the ones who made thoughtful decisions consistently: about when to sell, when to exercise, when to diversify, and how to manage the tax consequences of all of it.
Four parts, one framework.
A short, practical read. Each part ends in a decision you can actually make.
RSUs
The basics most people skip: vesting, the withholding gap, and the hold-or-sell decision.
ISOs
Powerful, but easy to get wrong: the AMT trap, exercise windows, and a clear decision framework.
Tender offers
A decision with a deadline: how to evaluate pre-IPO liquidity before the window closes.
Five questions
A universal framework to apply to any equity decision, whatever form it takes.
The basics most people skip.
What an RSU actually is
A Restricted Stock Unit is a promise from your employer to give you shares of company stock at a future date, provided certain conditions are met, typically that you remain employed through a vesting schedule.
The most important thing to understand about RSUs: they are not a bonus. They are compensation, delivered in the form of stock, and they are taxed accordingly. When your RSUs vest, the value of the shares on that day is treated as ordinary income. It shows up on your W-2. Federal, state, and payroll taxes all apply. For a Bay Area tech employee earning $300,000 or more, that marginal rate is significant.
The withholding gap
Here is where most people get into trouble. When RSUs vest, your employer withholds taxes, but typically at a flat 22% federal supplemental rate. If your actual marginal federal rate is 32% or higher, that gap adds up fast.
On $100,000 worth of vested RSUs, you may owe $10,000 or more beyond what was withheld, before California taxes are even factored in. This surprises people every April. Some are completely unprepared.
The fix is straightforward: track your vesting events throughout the year, estimate your actual tax liability on each one, and set aside the difference. The important thing is knowing it exists before it arrives.
Should you hold or sell?
This is the question most RSU holders spend the most time on, and it is often the wrong question.
If you didn't already own this stock, would you buy it today with this much of your net worth?
Most people wouldn't. They already have significant exposure to their employer through their salary, their career trajectory, and their unvested equity. Adding concentrated stock on top of that creates a level of single-company risk that most financial plans would not recommend.
The general approach we use with clients at Austin Creek Capital is a systematic sell strategy: sell a meaningful portion on vest, diversify the proceeds, and make deliberate decisions about any shares you choose to retain, rather than defaulting to holding everything.
There are situations where holding makes sense. There are more situations where people hold for emotional reasons and call it a strategy. The right framework treats every vest date as a fresh decision.
Powerful, but easy to get wrong.
What makes ISOs different
Incentive Stock Options give you the right to purchase company stock at a fixed price, the exercise price or strike price, set at the time of grant. If the company's value grows, the difference between your strike price and the current value represents potential profit.
Unlike RSUs, ISOs are not taxed when they vest or when you exercise them, at least not under the regular income tax system. This is their key advantage. But there are conditions, and the Alternative Minimum Tax complicates things significantly.
The AMT trap
When you exercise ISOs, the spread, the difference between the strike price and the fair market value on the day you exercise, is not counted as regular income. It is, however, counted as income for purposes of the Alternative Minimum Tax.
For employees at late-stage startups with significant appreciation, this can create an AMT liability of hundreds of thousands of dollars, on income that has not been received in cash yet. If the company's value declines or a liquidity event does not happen, you can be left with a large tax bill and stock worth less than what you paid in taxes. This has happened to employees at real companies.
The exercise decision framework
The decision of when, and whether, to exercise ISOs is one of the most consequential financial choices a startup employee can make. Four variables to weigh:
- 1 Time remaining in the exercise windowMost ISOs expire 10 years from grant, or 90 days after you leave the company. If you are considering leaving, that 90-day window is critical: missing it means losing options that may be worth significant money.
- 2 The company's valuation and your view of its trajectoryExercising is only valuable if you believe the stock will be worth more in the future than it is today.
- 3 Your AMT exposureBefore exercising, model your AMT liability. How much will you owe, and can you cover it without selling the stock if a liquidity event does not come?
- 4 Your ability to absorb the lossNever exercise more than you can afford to walk away from. Illiquid startup stock is a bet, not a guarantee.
The wrong answer is exercising the maximum amount possible in one year without modeling the tax consequences first.
A decision with a deadline.
What a tender offer is
A tender offer is an opportunity for shareholders, including employees, to sell some or all of their equity back to the company or to a third-party investor, at a defined price within a specific window of time.
The decision framework
What price are you being offered? Tender offers sometimes come at a discount to the most recent 409A valuation or preferred share price. Understanding what you are actually being offered, relative to what the company is worth, is the starting point.
What is your concentration risk? If a significant portion of your net worth is tied up in this company, a tender offer may be the most important diversification opportunity you will ever have. Turning it down in hopes of a higher price at IPO is a bet, sometimes a good one, sometimes not.
What are the tax implications? Shares sold in a tender offer are subject to capital gains tax. If you have held them long enough to qualify for long-term treatment, the rate is lower. Timing matters.
What happens if you don't participate? You retain your shares and wait for the next liquidity event, which may mean waiting years for an outcome that may or may not come.
Participating in a tender offer is not always the right move, but turning one down without a clear reason why is rarely the right move either. It deserves a deliberate decision, not a default.
The five questions to ask before any equity decision.
Whether you are selling RSUs, exercising ISOs, or weighing a tender offer, these five apply to every situation.
- 1 What is my total exposure to this company?Count everything: vested equity, unvested equity, and the implicit exposure from your salary and career. How much of your financial life depends on this one company doing well?
- 2 What is the tax impact, and when does it hit?Every equity decision has a tax consequence. Know what it is before you make the decision, not after.
- 3 What am I assuming about the future, and what if I'm wrong?Most equity decisions involve some view about where the company is headed. Make that assumption explicit, then stress-test it.
- 4 What would I do if this money were already in my bank account?This reframes the decision from “should I hold this stock” to “should I buy this stock.” It is a more honest question.
- 5 What does this look like in the context of my full financial picture?Equity decisions do not exist in isolation. They interact with your tax situation, cash flow, other investments, and long-term goals. The right decision for one person may be wrong for another with identical equity and a different financial situation.
Equity is an opportunity. Make it one.
The tech employees who build lasting wealth from equity compensation are not the ones who got the best grants. They are the ones who made thoughtful decisions consistently: about when to sell, when to exercise, when to diversify, and how to manage the tax consequences of all of it.
None of this requires predicting the market. It requires a clear framework, good information, and enough lead time to act intentionally rather than reactively.
That is exactly what we help clients build at Austin Creek Capital.
Austin Creek Capital is a fee-only registered investment advisor based in Mill Valley, serving tech professionals and their families across the Bay Area and nationwide. We specialize in equity compensation planning, tax-aware financial planning, and building long-term financial clarity for households navigating complex income and equity situations.
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Educational content only, not tax, legal, or investment advice. See our disclosures and Form ADV.