What happens to your options if you leave before an IPO.

The majority of pre-IPO equity compensation comes in the form of stock options, not outright shares. Options are a right to purchase shares at a fixed price — the exercise price, set at the 409A fair market value of common stock on the grant date — for a defined period. The catch is that this right does not last forever, and for employees who leave before a liquidity event, the clock moves faster than most people expect.

The 90-day post-termination exercise window

Standard equity plan documents, particularly those governed by the NVCA model equity incentive plan that most venture-backed companies use as a baseline, give departing employees 90 days after their last day of employment to exercise any vested incentive stock options (ISOs). After that window, unexercised ISOs typically expire worthless — regardless of how much value they might represent at current secondary market prices.

Some companies have extended this window to one, two, or even ten years after departure, particularly following public advocacy in the startup community for more employee-friendly terms. These extended exercise windows are not universal, and the specific terms in your option grant agreement and the company's equity plan document control. Nothing in common practice overrides what your paperwork says.

The three decisions you actually face

When you leave a company with vested options, you face a decision tree with real financial stakes. Understanding each branch before your window closes is the goal.

Decision 1: Exercise and hold

You pay the exercise price out of pocket, converting your options into actual shares. Those shares then sit in your name (or a custodial account) as illiquid private equity until a liquidity event — an IPO, acquisition, or secondary sale — converts them to cash. The benefit: if the company eventually exits at a high valuation, you have locked in a low cost basis. The risk: you have deployed real capital into an illiquid, undiversified position with no guarantee of any exit. For ISOs, exercising early also means potentially triggering alternative minimum tax (AMT) on the spread between the exercise price and the 409A fair market value at the time of exercise.

Many former employees who took this route in the 2020–2021 vintage did so when 409A values were elevated after aggressive primary rounds. When secondary prices subsequently fell, they were left with stock worth less than they paid in taxes at exercise. That outcome is not hypothetical — it is a documented pattern in this market, and it is why exercise decisions should not be made without modeling the downside carefully.

Decision 2: Exercise and immediately sell via secondary

If the secondary market for your company's shares is active, you may be able to exercise and then sell the resulting shares on the secondary market within a compressed timeline. This approach converts the option into a realized gain or loss rather than a long-term hold. The economics depend entirely on the spread between your exercise price and the secondary price a buyer is willing to pay today. On a well-traded name, that spread can be substantial. On a thinly traded one, you may find that no buyer is willing to pay a price that justifies the exercise cost and associated taxes.

One structural consideration: ISO shares sold within one year of exercise (or within two years of the grant date) are subject to a disqualifying disposition, meaning the gain is taxed as ordinary income rather than capital gains. If speed is the goal — selling quickly before your window expires — the tax treatment of an ISO sale may be less favorable than you assumed when the option was first granted.

Decision 3: Let them expire

This is the default outcome if you do not act. For options that are deeply out of the money — where the exercise price is above the current secondary market price — expiration is often the rational choice, not a failure. Paying $40 per share to exercise options when the secondary market is clearing at $35 is a guaranteed loss. Expiration in that scenario preserves capital. The tragedy is when options expire that were in the money, simply because the holder did not understand the timeline or did not have the capital to exercise.

How secondary marketplaces fit into the decision

If you are considering exercising in order to sell, the first thing to establish is whether the secondary market for your specific company is deep enough to support a sale in your time window. Not all 28 issuers available on active secondary platforms trade at the same depth. Some names attract consistent buyer interest across a range of transaction sizes. Others are thinner, with buyers available only at meaningful discounts to the last primary mark.

Establishing a live bid before you exercise is the sequence that matters. If you can confirm that a buyer exists at a price that makes the exercise economics work after taxes, you can proceed with more confidence. Exercising speculatively — on the assumption that a buyer will emerge at a good price — adds unnecessary risk to a decision that is already constrained by time and tax complexity.

Company transfer policies also matter here. Many private companies restrict secondary transfers to arm's-length third parties and require board or administrator approval. Some exercise a right of first refusal on any proposed transfer at the offered price. The time ROFR review takes — typically 10 to 30 days depending on the specific company's plan documents — must be factored into your countdown. If your option expires in 90 days and ROFR review alone takes 30, the effective window for executing a secondary sale is considerably shorter.

Practical steps before your window closes

1. Pull your option grant agreement and equity plan document. Confirm the exact post-termination exercise window and whether it applies equally to ISOs and NSOs.
2. Calculate the exercise cost in full: total shares vested, times the exercise price per share, equals cash out of pocket required.
3. Estimate the tax impact: for ISOs, model the AMT spread. For NSOs, model ordinary income tax on the spread at exercise. Your accountant should run these numbers; do not rely on rough estimates.
4. Check secondary market depth for your issuer. Look at recent transaction prices and bid-ask spread. A marketplace with confirmed supply and transparent pricing history gives you the most defensible read on current market.
5. If selling is the plan, submit an indication of interest to a marketplace before exercising. Confirming buyer demand at a workable price first changes the risk profile of the exercise decision entirely.
6. Account for ROFR timeline in your calendar. If your company has an active ROFR process, treat that review period as dead time and plan around it.
7. Make the exercise decision — and document it. If you decide not to exercise, document why, so you are not second-guessing yourself later.

The option expiry decision is one of the few irreversible ones in pre-IPO finance. A position that expires unexercised cannot be recovered. One that is exercised into an illiquid hold can at least be sold later if the market develops. Knowing where you are in the decision tree — and moving through it deliberately — is the entire job.

If you have already exercised and hold shares you are considering selling, the seller playbook covers how to think about timing, pricing, and structuring a secondary transaction. If you are still in the evaluation stage, our pricing guide explains how to read secondary market prices and what they imply about current buyer demand.