Early exercise

Early exercise lets an employee buy shares before the options vest, when the plan permits it. Unvested shares bought this way are subject to the company’s repurchase right at cost if the employee leaves before vesting. The value proposition is tax timing: an 83(b) election filed within 30 days freezes ordinary income at the spread on the exercise date, which is often zero at pre-seed or seed stage.

Example: joining a Series Seed company with 200,000 options at a $0.05 strike when the 409A is also $0.05. Early-exercising all 200,000 costs $10,000 and produces $0 of ordinary income after the 83(b). If the company is acquired for $40 per share five years later, the full $8 million gain is long-term capital gain.

Common mistake: early-exercising at Series C or later when the 409A has moved meaningfully above the strike. The ordinary income at exercise, plus AMT on ISOs, often exceeds the value of starting the capital gains clock.

Early exercise matters at the earliest stages, before 409A valuations have lifted, and when the employee can afford to lose the exercise cash outright.