How does an early exercise option work?
Early exercise lets you buy unvested shares now, starting the capital gains clock while the spread is small or zero.
The mechanics
If your plan allows early exercise, you purchase unvested shares subject to the company's repurchase right, which lapses as you vest. You own the shares, but the company can buy them back at cost if you leave before vesting.
The 83(b) requirement
Early exercise is only useful with a Section 83(b) election filed within 30 days. Without it, you are taxed on the spread as each tranche vests, which defeats the purpose.
The risk
You pay real cash for shares in a company that may never have a liquidity event, and the money is gone if you leave early or the company fails. Only exercise early with money you can afford to lose.
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