A decision most people aren't ready for
An engineer I know left a Series B startup last spring after four years. Strong performance, great references, a better job waiting at a public company. The exit interview took twenty minutes. The HR rep handed over the paperwork. Toward the end of the conversation, almost as an afterthought, she mentioned: "You have 90 days to exercise your vested options or you lose them."
The engineer had 30,000 vested ISOs at a $1 strike price. The current 409A valuation was $8. To exercise, she would need to write a check for $30,000 and would owe approximately $50,000 in AMT on the spread. To walk away, she would give up roughly $900,000 in potential value if the company ever exited at a strong multiple.
She had three days to decide.
This is the most consequential financial decision most startup employees ever make. And the people making it are almost never prepared.
What the 90-day window is and why it exists
The standard post-termination exercise window in a startup options grant is 90 days. From your last day of employment, you have 90 days to exercise your vested options or they expire worthless. Whatever percentage you vested over your years at the company — gone if you don't act.
This window exists for tax reasons more than business reasons. The IRS requires Incentive Stock Options to be exercised within 90 days of leaving a company to maintain their ISO tax treatment. After 90 days, ISOs automatically convert to NSOs with significantly worse tax characteristics. Most companies set the window to exactly 90 days to align with this rule.
Some companies are starting to extend the window — to 1 year, 5 years, or even 10 years. Coinbase, Pinterest, and a handful of progressive employers offer longer windows specifically to avoid forcing employees into impossible financial decisions when they leave. If your company offers an extended window, that's meaningful compensation. If they don't, you're on the standard clock.
The four numbers you need to know
Before making the exercise decision, you need to calculate four numbers. Most employees walk into this conversation having calculated zero of them.
1. The exercise cost — vested shares times strike price
This is the cash you have to write a check for. If you have 30,000 vested options at a $1 strike, exercise costs $30,000. Real money, out of your bank account, today. If the company eventually fails, this money is gone.
For most early employees at Series A or Series B companies, exercise costs land somewhere between $5,000 and $50,000. For senior employees at later-stage companies, exercise costs can run into the hundreds of thousands or millions.
2. The AMT bill — the spread between strike price and 409A, times the AMT rate
This is the tax you owe simply for exercising, before you sell a single share. ISO exercises trigger Alternative Minimum Tax on the spread between your strike price and the current 409A fair market value.
In the engineer's case above: 30,000 shares times a $7 spread ($8 409A minus $1 strike) equals a $210,000 AMT preference. At the federal AMT rate of 28%, that's roughly $58,800 in additional tax owed in the year of exercise — before any state taxes.
This is the number that catches most people. You can be cash-positive on exercise (the $30,000) and tax-negative on AMT (the $58,800). You owe $58,800 to the IRS in April, before you've sold anything, for shares you can't sell yet because the company is still private.
3. The conviction discount — what you actually believe the company is worth
The current 409A valuation is a tax document, not a market signal. It represents fair market value for tax purposes, typically at a significant discount to the most recent preferred round price.
The number that should drive your decision is what you actually believe the company is worth when you exit, multiplied by your probability that the exit happens. If you believe there's a 30% chance the company exits at $10 per share within five years and a 70% chance you get nothing — your expected value per share is $3, not $8.
Apply that conviction discount to your decision math. Be honest with yourself.
4. The opportunity cost — what else you could do with the same cash
The $30,000 you would put into exercise could go into index funds, your house downpayment, paying down debt, or starting your own thing. The risk-adjusted return of exercising private company options needs to beat those alternatives, not just be positive.
For employees at high-conviction companies with strong cash positions, exercise often beats the alternatives. For everyone else, the comparison is closer than it looks.
The 90-day clock starts the moment you walk out. Most people don't realize they're making a six-figure decision until the calendar is already running.
The three buckets every employee falls into
After you've calculated the four numbers, you fall into one of three buckets:
High conviction, has cash. You genuinely believe the company will exit well, and you have the cash to exercise plus pay AMT without straining your finances. Exercise. The math usually works in your favor at this point because you've started the long-term capital gains clock, and you've protected the QSBS exemption that can shield up to $10 million from federal capital gains tax. This is the cleanest scenario.
High conviction, no cash. You believe the company will exit but you don't have the cash to exercise or pay AMT. You have options. Secondary platforms like Secfi or Equitybee can finance exercise in exchange for a share of upside — expensive, but better than walking away. Partial exercises are also possible — exercise some shares now, hope for an extended window or a tender offer later. Talk to a CPA who specializes in startup equity before doing anything.
Low conviction or no cash you can risk. Walk away. The expected value math doesn't work. There's no shame in this — most startups don't exit at multiples that make exercise math pay off. Treat the equity as the option it was — exercisable if it became valuable, discardable if it didn't.
What to do about it
Five concrete actions for anyone with vested options at a private startup:
Know your post-termination exercise window today, not when you leave. Read your equity grant agreement. If it says 90 days, you're on the standard clock. If it says longer, you have flexibility.
Build the exercise cash now if you have conviction. Don't wait until you're already leaving. If you believe the company will exit and you'll want to exercise when you leave — set aside the cash now, in increments.
Talk to a CPA who specializes in startup equity before any major decision. Generalists will give you wrong or incomplete advice. The right CPA pays for themselves many times over on this single decision.
Model your exercise scenarios on paper before you leave. Use the four numbers above. Calculate AMT for different exercise sizes. Know the answer before HR hands you the paperwork.
Don't let the 90-day clock force a bad decision. If you're not sure, the default is don't exercise. Walking away from options is recoverable. Writing a $30,000 check and a $58,000 AMT bill on a company that fails is not.
The takeaway
The 90-day decision is one of the few decisions where most startup employees are simultaneously least prepared and most exposed. It involves real cash, real taxes, real risk, and a deadline that doesn't extend. The people who handle it well are the ones who did the math months before they needed to.
If you have vested options at a private company right now — open your grant agreement, find your strike price and post-termination exercise window, look up the current 409A from your last refresh, and calculate the four numbers. Do it this week, not the week you leave.
Want to walk through the exercise decision step by step with real numbers? Try the 90-day decision scenario in Stage 4 of the Journey on Gargiulo, plus the broader Tax topic pack on AMT, ISOs, and disqualifying dispositions. Sterling has math.
Sources: IRS Publication 525, Carta, Secfi, Equitybee, and analysis from Compound Planning and Darrow Wealth Management.