When you sell your stocks before 5 years of holding period has passed, you pay significantly higher taxes. So you don't get 500k net, you get 500k gross, or probably 300k net. Which makes the de-risking less compelling.
The numbers are made up anyway, adjust up by a few hundred thousand and the point that securing one’s shelter is worth foregoing winning the lottery still stands.
This is when you immediately liquidate your stock position, instead of taking a loan using it as a collateral, which would likely cost you 10%-15% in interest, not 30%.
No, in this example the person sold equity in order to get the 500K. They can't use the equity as collateral for the loan because they dont own it anymore
But then they’re paying interest and very few startups are going to have stock that a someone will lend against. I cannot imagine someone taking Series A stock as collateral for a loan.
Not sure why you are getting downvoted. There are multiple ways of structuring what is effectively selling the shares early that are not tax disadvantaged.
When you sell your stocks before 5 years of holding period has passed, you pay significantly higher taxes. So you don't get 500k net, you get 500k gross, or probably 300k net. Which makes the de-risking less compelling.
[0]: https://www.investopedia.com/terms/q/qsbs-qualified-small-bu...