50,000 incentive stock options with $0.50 strike price Early exercise allowed before vesting period completion Company had $1.5m ARR with 15% monthly growth rate 90-day option expiration policy if leaving company

Two Strategic Options

Option 1: Early exercise all options in 2018 for $25,000 Option 2: Wait until 2022 when 409A rose to $10.00 Later exercise would cost $153,340.50 including alternative minimum tax Client chose early exercise using cash and selling public investments

Tax Benefits Realized

No taxes paid during exercise since strike equaled 409A price Qualified for long-term capital gains treatment on future sales Started qualified small business stock eligibility clock early QSBS could provide tax-free gains up to $10 million

Additional Strategic Benefits

Peace of mind allowed focus on building company value Flexibility to leave company without losing unvested options Avoided 90-day exercise window pressure upon termination Owned shares outright rather than maintaining option exposure

Early exercise carried $25,000 downside risk if company failed Company failure is statistically most likely startup outcome Alternative approach would have preserved capital if company failed Risk-reward decision required confidence in company and leadership

Early exercising saved approximately $128,000 in taxes versus waiting File Form 83(b) election to maximize tax benefits timing Consider QSBS eligibility when planning long-term equity strategy Evaluate company prospects and personal risk tolerance before exercising