When do investors become aware of QSBS eligibility and how does it impact their decision to hold onto their stocks?

First off, I’ve got to mention this -- it’s really, really important -- a lot of startup employees do not take advantage of QSBS, for the sole reason that most employees don't exercise their options. Now, there are multiple reasons why you should or shouldn't exercise your options. I won't go into all of them.

Unfortunately, what we often see is, an early employee joins a company -- say Secfi or Sacra -- and they don't exercise until that big funding round that takes us to, say, a billion dollar valuation. Say Sacra raises another funding round, you raise $50 million, and now you're not QSBS eligible. Those who hold stock options didn't exercise, so they don't get to take advantage of that QSBS. Most people don't do that. I think it's a mistake for a lot of people, so I want to make sure I mention that. Make sure you take advantage of that if you are interested in exercising your options and you work for a company or you're investing in a company that's less than $50 million. Make sure that it’s QSBS.

Most people start thinking this when it's actually substantial, getting closer to an exit. It's a long journey for most. I think most people who have QSBS stock will likely be over that five-year mark. I guess maybe in this day and age of valuations, maybe that's going to go away. But you usually take five years or greater to actually come close to that $10 million limit.

A lot of people come to us when they start thinking about this. What is their exit strategy for the stock? “Do I sell it in a tender offer? What impact does that have on my QSBS in the grand scheme of things? Or do I just wait until after the exit?”

There’s lots of planning being laid around the exit. Like a lot of options in general and with stock, most of it usually happens right when the company is starting the process of going public or going through an acquisition. There are a lot of impacts on taking advantage of a tender offer earlier. You're selling, and you have a full $10 million exclusion, but maybe selling too early may not take full advantage of that $10 million exclusion.

So, this is how I answer your question: a lot of this typically happens closer to an exit, once the stock is highly appreciating. Typically after five years, because it takes five years to get there.