The Psychology Behind Equity Decisions for Tech Employees
By Nicholas Garcia, Contributor. As a Principal Wealth Advisor at Compound Planning, Nicholas Garcia has spent 15+ years helping individuals and families navigate equity compensation, liquidity events, and comprehensive financial planning.
This was originally published in Forbes
It’s the moment all tech employees have been working towards: a liquidity event where they can finally sell their hard-earned equity. But when tender offers, IPOs, or acquisitions actually happen, even the most analytical founders and executives make predictable mistakes.
It’s not because they lack the intelligence to figure it out, it’s often because equity isn’t just a financial asset — it’s tangled up with career decisions, belief in the success of the company, and years of hard work finally paying off (literally).
The math matters, but it’s not the only consideration. To make sure you don’t regret your equity decisions, you need to understand the common behaviors that lead to mistakes and navigate them with a structured, decision-making framework.
The Common Missteps
While IPOs are often seen as the gold standard for liquidity events, tender offers have become increasingly common. OpenAI, Anthropic, Stripe, and Plaid have all had tender offers in the past two years.
Those offers typically come with narrow decision windows, and the decisions are far more complex than they appear. You need to decide how much to sell, which shares to sell for tax optimization, and whether you should sell at this valuation.
That last question matters more than ever: valuations have been climbing rapidly for many companies compared to historical trends, creating psychological pressure on top of analytical complexity.
Why Intelligent People Can Make Predictable Mistakes
Even when someone’s extremely skilled at optimizing systems and analyzing data, emotions and impulsive behavior can still creep in when it’s time to make personal financial decisions. With equity, financial decisions can get mixed up with personal feelings about the company which can cloud judgment, whether they’re positive or negative.
That’s why you need a comprehensive plan during liquidity events as a way to combine financial math with your life goals and long-term planning.
Here are the potential consequences for those who overlook comprehensive financial planning:
The Analysis Spiral: Employees do extensive research on what they should do based on what others have done. But this overlooks their own circumstances — financial situation, career goals, and personal priorities. They either get analysis paralysis or pick a generic strategy that doesn’t fit.
The Social Pressure Problem: Company Slack channels are probably buzzing, and they’re a breeding ground for groupthink and a loud select few. When it seems like everyone agrees about the best strategy, it’s easy to opt in, but this approach could backfire for many participants.
For example: A senior engineer with $2M in savings vs. a new hire with student debt are in totally different life stages and have different risk tolerances. The former might advocate to hold everything, influencing others who have completely different financial pictures.
Indecision is a Decision: Ignoring the decision is still a decision. Doing nothing means staying fully concentrated in your company stock, which carries its own risks. While tender offers are becoming more common, they’re not guaranteed. Missing this window could mean waiting years for the next one.
Liquidity events are already complex decisions. Add in these internal and external pressures, and it’s easy to see why even smart people make mistakes. That’s where a three-bucket framework helps cut through the confusion and focuses on what actually matters for your situation.
The Three-Bucket Decision Model
The three-bucket framework is useful because each bucket represents an area that needs equal attention. It separates the math (what’s provable) from your values and career goals (what’s personal) so you can make clear decisions instead of getting paralyzed by trying to optimize everything all at once.
1 . The Financial Bucket
The math is where almost every individual’s decision matrix starts. It can’t tell you what to do, but it can show you what’s at stake.
Timing is one of those stakes. The longer you wait to exercise stock options, the more it can cost: as share value rises, so does the tax bill potentially limiting how many you can exercise and reducing your proceeds.
Another stake is concentration risk. Your salary is already concentrated in your company (obviously). But when you don’t diversify your equity, your investments become concentrated there too, tying both salary and wealth to the performance of your company.
Remember, valuations don’t always increase. Many companies saw inflated valuations in 2020-2021, then were cut in half or more in 2022-2023. Some are still growing back into their peak valuations.
Today’s AI Boom resembles that peak era. Rapid valuation growth has experts and employees alike questioning whether these numbers are sustainable — although the fundamentals today do look stronger than they were during the dot-com bubble.
Despite these risks, many employees stay fully concentrated. Why would they sell when their company could grow another 50% per year, but the stock market only returns 6-8%? The problem is they’re assuming best-case scenarios and comparing them to the market’s average returns. Even if your company does outperform, concentration leaves you vulnerable if things go wrong.
Mathematical modeling doesn't find "the answer" for anyone’s strategy — it removes peer pressure and paralysis from what's provable, so they can think more clearly about the unprovable parts.
2. The Emotional Bucket
The question isn't "Should I sell?" but "How would I feel about each outcome?” The math shows you what’s possible. This bucket is about what you can live with. Would you regret missing upside more than staying concentrated? Does selling feel like giving up what you’re building, or does staying fully invested feel like unnecessary risk?
The answer varies by life stage. Young engineers might focus on maximizing growth because they don’t yet have a family and are able to take on more concentration risk.
A more senior employee with a family may want more downside protection by diversifying their concentration. To them, “managing regrets” isn’t as important as securing a financial future tied to owning a house, saving for children's education, and preparing for retirement.
This is where visual modeling becomes valuable. Tools like Compound's Equity Simulator let you see what selling 10%, 20%, or 50% would mean at different valuations (both optimistic and pessimistic scenarios). The numbers show the trade-off clearly, so you can decide how you feel about each outcome.
There's also the psychological benefit to selling. After years of hard work, turning equity from a hypothetical into real money brings real relief. It can help stop you from obsessing over company news and valuations because you’ve locked in gains you can actually use.
Selling decisions should not solely be based on financial optimization. Emotions aren’t weaknesses, they’re vital factors that need to be part of the process.
3. The Career Bucket
Equity is often called “golden handcuffs” for good reason. Employees can feel stuck at their current company because they can’t afford to exercise their options, and if they leave, they often only have 90 days before losing them.
Participating in a tender offer can relieve that pressure. It gives you the financial flexibility to make career decisions based on what you actually want, not what you can afford.
The reality is, that’s not uncommon in startups and tech companies. If you’ve seen your company grow from 20 to 1,000+ employees in four or five years, the culture changes or you just feel ready for a new challenge. Some people realize they enjoy earlier stage companies over late-stage companies. And some people realize they need to look for career advancement elsewhere.
Liquidity can give employees a financial cushion to take time off, recalibrate, and make their next move thoughtfully instead of desperately. It also creates the runway that enables them to pivot, like diving into entrepreneurship or changing industries. Selling equity creates options.
How Modeling Helps Break Binary Thinking
The three-bucket framework works when it’s put against realistic scenarios, not just ideal ones.
If an employee’s been grinding away at their company since day one, they’re typically invested in its success. That means they might be overly optimistic, only picturing upside scenarios (like IPOs and stocks doubling) and ignoring downside possibilities (growth stalling or valuation dropping).
With scenario modeling, you can see what both extremes look like, as well as everything in between.
- Model multiple scenarios: What if the company succeeds, stays flat for three years, or drops like valuations did in 2022?
- Calculate true take-home: See what money is left after federal taxes, state taxes, and AMT — not just gross proceeds.
- Compare realistic outcomes: If you sell 20% and invest it at 6% annually, what’s your net worth in five years? What if you keep 100% in company stock?
- Use public competitors as reality checks: Compare the company to similar public companies (Figma vs. Adobe, Plaid vs. Adyen) to ground your expectations.
Let’s Look at Realistic Modeling in Action
When Plaid had their tender offer, employees could only sell up to 15% of their total equity. Many of these employees had been through a difficult experience. Plaid was set to merge with Visa a few years earlier, and employees anticipated a liquidity event. But after a year of legal processes, the deal fell through.
So when the tender came, the question wasn’t just about math, but about regret. After waiting so long, should they finally take something off the table?
To help them understand their options, we modeled two scenarios:
- If Plaid outperforms: Employees who sold 15% and kept 85% would still see substantial returns. Those who kept 100% would see even more.
- If Plaid's growth stalls: Employees who sold 15% and diversified their proceeds into other investments had built-in downside protection. Those who kept 100% were fully exposed.
The modeling didn’t tell anyone what to do. It showed them trade-offs so they could decide which one they could live with, and limit the regret either way.
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Making equity decisions isn’t about making the “perfect” decision, it's about making the right decision for you. You may never know if you were right, but by using the three-bucket framework, you can defend that you made the best decision with the information that mattered to you.
The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change.