Raising Money From Tech Professionals and Their Equity Compensation
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Engineers, product managers and other tech employees often have high income and stock-based pay. Many hold a large share of their wealth in one company's stock and want to diversify. That makes them a natural fit for apartment investing, with some special timing and rules. This post covers how a sponsor can approach them. It is general information, not legal or tax advice.
Are tech employees accredited?
Often, but check each person. The income test looks at income in each of the last two years with a reasonable expectation of the same this year, and the net worth test excludes the primary residence (17 CFR 230.501). Stock compensation can count as income when it vests or is sold, but unvested or restricted shares may not be liquid, and net worth should be assessed carefully. In a 506(c) raise you must verify; see accredited investor verification and the income test.
What is different about their timing?
| Situation | What it means for you |
|---|---|
| Shares vest quarterly | Cash may be available after vest dates and sales |
| Trading windows | Employees may be able to sell shares only in certain periods |
| Lockups after a company goes public or is acquired | Funds may arrive on a later date |
| Tax withholding on vesting | Net cash is lower than headline value |
| Concentrated holdings | The person may want to diversify, with a plan from their adviser |
Build a flexible closing timeline and offer a wait list. Do not pressure anyone to sell shares to meet your deadline. See investor misses wire deadline and waitlists.
How should you approach them?
- Start with relationships: former coworkers, friends, alumni groups. See raising from coworkers.
- Educate first: many have never invested in private deals. Offer a short guide and a call.
- Offer data they value: a clear model, assumptions and sensitivity analysis. See sensitivity analysis.
- Be upfront about illiquidity: the money is locked for the hold period. See selling an interest.
- Keep it off company channels: no company email, chat or time.
Check the exemption: 506(b) allows offers only where you have a relationship (SEC, Rule 506(b)); 506(c) allows public promotion with verification (SEC, Rule 506(c)).
What about taxes?
Selling company stock can create capital gains or ordinary income depending on the type of award and holding period (see IRS Topic 409 for capital gains basics). That is the employee's tax and their adviser's call. Do not suggest that investing in your deal solves a tax bill, and see investor tax questions.
Our take
Tech professionals are analytical and often busy. Respect their time, show your model and your risks and give them room to plan around vesting and trading windows. Deals fund on trust.
Trade-offs and who this is not for
- Not for pitching colleagues at work. It risks both employment and securities problems.
- Common mistake: assuming a large paper net worth is spendable.
- Not tax advice.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from friends and followers who already trust them, under Rule 506(b) or 506(c). We are software, legal document preparation, escrow coordination and verification services. We are not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent, and we do not hold investor money: investors wire their money to escrow at Enterprise Bank & Trust, in the deal's name.
DoorRaise keeps the deal in its own company with its own documents and a deal page, and runs an accreditation check on every investor, in 506(b) and 506(c) raises. Flat fees, never a percentage of the raise (see pricing). Create your free sponsor page.
FAQ
Are tech employees accredited investors?
Often, but each person should be checked against the income or net worth test.
Can stock options be invested in a syndication?
Only after they are exercised and the shares are sold for cash, which is the employee's decision with their adviser.
Can I pitch in a tech employees' forum?
Only in a Rule 506(c) raise, with verification. A public post is general solicitation.
Should I promise a tax benefit from investing?
No. Leave tax conclusions to the investor's adviser.
Sources
This article is general information, not legal, tax or investment advice. Talk to a securities attorney and your own CPA. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.