Joy Budnik: Navigating Equity Compensation

There’s both a science and art to serving successful tech start-up entrepreneurs

We’re living in an age when the term “game changer” has been used so frequently that just hearing it can make certain people cringe – Especially when the term is describing a situation that is more about hype than reality.

But it would be more than fair to say that the technology sector has created game-changing outcomes for wealth management – And not just in terms of the tools and solutions available today to wealth managers.

The technology sector has irrevocably transformed the very face of wealth in our country.  Gone are the days when being wealthy meant being at least in your 40s or 50s, with enough career runway behind you to have accumulated wealth… or just being part of the intergenerationally wealthy segment of households.

Instead, the dynamism and energy of the technology-fueled economic growth the US has witnessed for the past 25 years have produced billionaires and multimillionaires at an incredible pace, with many of these newly rich individuals in their 20s and 30s.  One thing they largely have in common?  Their wealth is based on equity, frequently in closely-held companies.

Joy Budnik, an Investment Advisor at Jackson Square Capital, a San Francisco-based RIA firm with over $300 million in assets, is no stranger to the opportunities and challenges offered by this client segment.  Given Jackson Square Capital’s location, it’s hardly surprising that the firm’s client base includes many professionals employed by technology startups. 

Tech start-up equity compensation can be lucrative, but they can also be equal parts confusing and nerve-wracking.  With wealth managers increasingly dealing with these issues, WSR sat down with Budnik to discuss the best practices she believes are central to navigating equity compensation for clients.

WSR: How are executives, founders and angel investors in high-growth companies different from other types of clients?

Budnik: Every client is different. Each one has different needs and goals. However, the biggest difference with these folks is that much of their wealth is tied up in stock-based compensation.

And while these are incredibly smart people who tend to be good at making decisions, they face the same challenges we all do when it comes to money – too much emotion and uncertainty stresses them out. 

WSR: What are the biggest challenges surrounding equity compensation?

Budnik: When someone has a hand in a company’s operations, it’s easy for them to have rose-colored glasses. They can believe the upside is never-ending. 

But there will always be factors outside the company’s control – a rogue lawsuit, regulation or market volatility – that can sink even the highest flyers. 

Our responsibility to these clients is to make sure that their financial security isn’t threatened by their own FOMO.

WSR: What’s the best approach to deal with these issues?

Budnik: Having a plan helps a lot. Even if someone is working at the next Amazon or Google, a solid diversification strategy can help provide security during tough times while still allowing ample exposure to upside in the company.

There are levers we can pull to optimize for tax savings, maximum upside, creating intergenerational wealth, and so on. 

Simply having a plan in place can relieve a lot of day-to-day stress and free up energy for other things – And this includes focusing on the continued success of your own company! 

WSR: You’ve mentioned that being part of a wealth management firm that values diversity – in terms of culture, gender and age – is important for success, both in terms of serving tech start-up clients, and in a more general sense.  Why?

Budnik: It’s important to stress-test ideas, and that just doesn’t happen in the same way in a homogenous group. 

I would challenge leaders to think about diversity not only from the perspective of race, sex and age, but also to aim to find diversity in unexpected places by hiring people with varied outside interests and life experiences. 

Any difference can lead to a new perspective. 

Looking at successful tech start-up founders, so many of them are outsiders who disrupt an industry. I don’t think that’s a coincidence; there’s a magic to varied perspective, and welcoming diversity is welcoming that magic.

Michael Madden is a Contributing Editor & Research Analyst with Wealth Solutions Report.  He can be reached via email at ContributingEd@wealthsolutionsreport.com