Instacart RSUs at IPO: What You Need to Know

For most tech professionals, their company’s IPO is one of the most exciting and potentially life-changing events they’ll experience. With Instacart’s IPO coming very shortly, we want to give you the information you need to make informed and intelligent decisions about your Instacart RSUs at IPO.

Instacart in particular has included an interesting clause in their IPO documents that allows employees to potentially sell a large portion of their equity before the 180-day lock-up period ends – something that is atypical but provides incredible flexibility to employees and should be carefully contemplated as part of your IPO strategy. Read on to learn more.

Instacart RSUs at IPO: Preparation – It Starts Before the Bell Rings

Before we get into detail on some of the nuances specific to Instacart, let’s review the key things you should do to prepare for any IPO.

1. Gather Information

The first step in smart IPO planning is to gather all of the relevant information and documents in one place so that you can put together a holistic picture of your finances and how the IPO will impact you. You’ll want to have a clear idea of how many RSUs or options you own, their vesting schedule, and whether they’re subject to double-trigger vesting. You’ll also want to familiarize yourself with the IPO process and its timelines – Instacart will likely provide resources and communication to help with this, but it’s essential to take initiative in your learning.

2. Map Out Your Goals

A foundational building block of financial planning is identifying and mapping your core goals. This way you’re able to build a solid framework with which to make financial decisions in your own best interest, rather than simply monetizing your Instacart RSUs at IPO for cash as quickly as possible.

3. Analyze Your Tax Scenarios

Your next step is to use the information you’ve gathered to get a rough sense of the potential tax impact of the IPO. You’ll want to look at how many shares you’ll have on IPO day and the expected IPO price. Then you’ll use that information to determine the two main tax impacts (our friends at EquityFTW have a great breakdown on RSU tax treatment in their own Instacart IPO article if you need a quick refresher on how it works):

• Income Tax – this is particularly relevant if you’re subject to double-trigger vesting, as it means a substantial amount of your RSUs will vest on IPO day, creating taxable income. You can get a rough sense of the tax impact here by calculating [# of shares] * [IPO price] * [Your marginal tax rate]

• Capital Gains Tax – if you sell your RSUs at a higher price than when they vested, you’ll incur capital gains tax. This can be anywhere from 0% to 37% depending on your income and the amount of time between the RSU vest and ultimate sale.

It’s important to get a sense for the tax impact of the IPO so that you can proactively ensure that your withholding rates are set properly as well as make sure you set aside some cash for any potential tax liability – the last thing anyone wants is a surprise tax bill at the end of the year and no cash to cover it! We strongly suggest speaking with your tax or financial advisor to nail down a tax strategy.

Instacart RSUs at IPO: Strategy for Selling

Deciding how, when, and how much to sell is going to be a subjective exercise based on your current financial situation, goals, risk tolerance, timeframe, and more. However, you can use historical IPO data as well as information specific to Instacart’s public offering to help make a decision about your Instacart RSUs at IPO that works best for you.

What Does the Historical IPO Data Tell Us?

While historical data needs to be taken with a grain of salt (it’s aggregated over thousands of companies, so any single company can depart meaningfully from the trend), looking at the returns over an entire universe of companies post-IPO can help you formulate your own plan for how to manage your Instacart RSUs at IPO. Let’s break this down into two separate decisions – the short-term, and the long-term:

Should I sell some shares in the near term when the lock-up expires?

Professor Jay Ritter from the University of Florida has some terrific data to inform your decision-making around the lock-up period. According to his research, between 1980 and 2021, IPOs have typically outperformed similar firms by 1.1% in the first six months, which generally aligns with the time that most Instacart employees will be locked up and unable to sell shares. However, IPOs have historically underperformed similar firms by 4.2% in the second six months – the period during which most Instacart employees will be unlocked and free to sell shares. Price and returns aren’t the only thing that matters – but arming yourself with this historical context should be helpful.

What should I do with my RSUs over the long term? Should I hold them or sell them?

Again, we have some great data on what happens to IPOs over the long run to help you make an informed and intelligent decision. According to the data from Nasdaq, three years after their IPO, about two-thirds of companies underperform the market by over 10%:

Further, of the 29% of IPOs that do outperform the market, the vast majority of the outperformance is concentrated in the top decile of names:

So – the implication here is that the vast majority of IPOs underperform the market over the longer term, with a small subset of “winners” producing fantastic returns. When considering your Instacart RSUs at IPO, ask yourself – do you have a high level of conviction that Instacart will be one of the few big IPO winners? If not, a good case can be made for selling at least a portion of your RSUs, particularly if they comprise a high portion of your net worth. If you decide to go this route, the next section will explore a unique early lock-up release feature that Instacart included in their IPO and that could be helpful for you. As always, everyone’s situation is unique – please consult your financial advisor to develop a plan for your RSUs that works best for your specific situation.

Instacart’s Unique Early Lock-up Release

Instacart’s decision to implement an early lock-up release option for its IPO is a strategic move aimed at benefiting its employees. The lock-up period typically restricts company insiders, including employees, from selling their shares for a certain period after the IPO – typically 180 days. However, by offering an early lock-up release, Instacart offers employees the option to access liquidity much sooner than usual. So how does the early lock-up release work?

According to the company’s S-1 Filing, if the company’s stock trades at least 20% above the IPO price for 5 days out of any consecutive 10-day period following its first earnings release as a public company, employees will be able to sell up to 35% of their holdings.

This offers employees incredible optionality – if the stock performs well after the IPO, you’ll have the ability to sell a large portion of your shares despite still being inside the 180-day lock-up window.

This optionality is why you must have a plan in place ahead of time. Normally, you’d have the full 180-day window to strategize, but in this case, your ability to sell RSUs could occur much sooner. You should work with your financial advisor to get a solid plan in place so that you’re prepared if this lock-up release gets triggered.

Your Instacart RSUs at IPO Adventure is Just Getting Started

Instacart’s IPO is a momentous event, and as RSU holders, you have a unique opportunity to benefit from the company’s growth. Remember that an IPO isn’t just about your individual financial gain; it’s also a chance to set yourself up for a more secure and prosperous future.

To maximize this opportunity, educate yourself, assess your financial goals, and consult with a financial advisor who has been there before.

At Proventus Wealth, we have cultivated a specialized focus on catering to the unique financial needs of tech professionals. We help our clients make informed decisions at every stage of the IPO process, ensuring that they maximize the value of their equity while mitigating risks.

But our support doesn’t stop at IPOs. We take a holistic approach to financial planning, recognizing that an IPO is just one step in a tech professional’s financial journey. After the IPO, we work closely with our clients to develop personalized investment strategies tailored to their unique goals and risk tolerance. Whether it’s diversifying their portfolio, planning for tax-efficient wealth management, or structuring long-term financial plans, we’re here to provide the guidance and expertise needed to build a secure financial future.

Book a call today to talk with us about preparing for Instacart’s IPO and your journey to financial independence.