If someone in tech has already launched the Heated IPO Summer, these are elite wealth advisors from Silicon Valley.
Two private wealth managers who work with high-net-worth technology professionals told me they’ve seen an augment in activity among their clients, with some of them expecting a gigantic liquidity event this year. We are, of course, talking about employees and early investors in SpaceX, OpenAI and Anthropic who are achieving staggering wealth. (The estate managers agreed to speak off the record but did not name specific companies, so any such references are my words, not theirs.)
Visions of superyachts, air-cooled Porsches, and vacation homes with closets full of Loro Piana probably come to mind. But elite advisors say most of their clients are quite strategic about their newfound wealth before they buy costly items, buy real estate or invest money in meme stocks. (Some get gigantic anyway.)
Ashley Velategui, head of wealth strategy at Bernstein Private Wealth Management, which has been offering guidance to high-net-worth individuals in Seattle and the Bay Area for nearly 20 years, says she encourages tech clients to calculate how much “basic wealth” they need to feel financially independent before making rash moves. They should also consider that a balance sheet consisting primarily of a single stock – SpaceX, for example – can change its value dramatically over time.
Brittany Boals Moeller, who heads Goldman Sachs’ West Coast wealth management division and who moved to the Bay Area last year to meet the needs of the tech community, says overall “the pace and scale of wealth creation appears to be faster than before.” In her opinion, “a large part of what we do is the so-called before-I’m planning an IPO now.”
Some observations I gained from conversations with them:
The definition of wealth has changed. Velategui says there is now more confusion about how people in the tech industry define high or ultra-high net worth. The mega-rich used to be anyone with a pot of $25 million to $30 million, but now her average client is worth between $20 million and $100 million.
Velategui adds that clients are considering establishing a “family office” – a compact private company to manage family wealth and assets – much earlier than in the past. Her ultra-wealthy clients are currently putting aside $25 million just to set up a family office, meaning their total wealth far exceeds that amount.
“Lockout periods” can be challenging to navigate. “Hot IPO Fall” doesn’t sound as exhilarating as “Summer,” but the reality is that most employees and early investors will not be able to sell their shares before the post-IPO stock freeze period ends. This is intended to protect the market from a destabilizing oversupply of inventory; Typically, the lock-in period is 180 days.
Even with “phased” outages, Velategui says workers are encouraged to exercise caution. These staged tranches introduce greater complexity because there are more points at which a shareholder can sell and the liquidation process requires more management.
Tax minimization is still the goal. Selling shares can result in high tax liabilities, and wealth managers are coming up with all sorts of sophisticated ways to allow their tech clients to spend money without selling their shares.
Velategui highlights several strategies for its clients, including: variable prepaid forwards, short box spreadsor borrowing money from their brokerage firm.
“The one that seems to come up most often in this community is variable prepaid forward contracts,” he says. With this strategy, the seller enters into an agreement with a financial institution to receive upfront tax-deferred payment for its shares and agrees to transfer those shares to the bank at a future date. These strategies are not risk-free – and are still subject to tax scrutiny – but what is Silicon Valley if not maddeningly risk-tolerant?