Tips For Managing Instacart RSUs

Initial Public Offerings (IPOs) have been few and far between in 2023. People outside of Instacart are excited about the company’s impending IPO, but nothing beats the excitement of Instacart employees currently holding Instacart RSUs. 

For many Instacart employees this is likely the first time they’ll be able to sell their RSUs and experience a sizable financial benefit from them. Before an IPO, employees often wonder if their RSUs will ever be worth anything. This is understandable, because until a liquidity event happens it’s basically just imaginary money. Now, with this IPO, employees will be able to exchange Instacart RSUs for real money. And this real money also comes with real-life consequences that need to be considered. 

The purpose of this article is to arm Instacart employees with our 7 tips to manage their Instacart RSUs through and after the IPO. It’s a once in a lifetime opportunity, so hopefully you find this helpful.

Tip #1 - Understand the timeline of IPO and Lockup

The first tip for managing your Instacart RSUs is to understand the timeline between the IPO and when Lockup ends.

On the IPO date, Instacart released shares of the company to be purchased by the public. This happened on 9/19/23.

The term Lockup refers to the period of time employees (aka insiders) of the company must wait before they are able to sell the shares they own. The timelines vary, but they usually last up to 180 days so you can expect similar with Instacart.

If we look forward 180 days, the first trading day that would fall on is Monday March 18, 2024. Technically, the Lockup period is planned to be the sooner of 180 days or after the second quarterly earnings after the company has been public - most of the time this ends up being 180 days.

Forcing a Lockup on employees is like letting someone into Disneyland but forcing them to ride “It’s a Small World” before going on the fun rides. It’ll be an excruciating 180 days, but assuming you follow the tips below, it won’t be so bad.

One question we get is “Does quitting your job get you out of having to follow the lockup restriction?” And the answer is usually, “No.” There are different requirements for registering shares with stock exchanges and usually the lockup requirement rules apply to both employees and recent former employees. It may require some investigative work to know for sure, but the answer is somewhere at the company - whoever is in charge of the equity plan should know.

Tip #2 - Pay attention to alerts about an earlier chance to sell

After Instacart IPOs, if its stock performance meets certain metrics, employees will be given a chance to sell up to 35% of their Instacart holdings.

The gist is that if Instacart’s stock price stays 20% above the IPO price for 5 days out of a 10-day span, then after Instacart’s first earnings release, employees that aren’t executives will be able to sell up to 35% of their holdings.

Since Instacart’s IPO price was $30, employees will want to see a price of $36 or higher for 5 days out of a 10-day span so they can have this extra chance to sell.

One of our friends just published an article covering the exact requirements on Instacart’s early selling period to happen and they did a deep dive on historical performance of IPOs.

Because there might be an opportunity to sell shares before the Lockup ends, we recommend paying close attention to any communications from HR or the equity compensation team at Instacart.

If you want to read the exact place this is located, it's at the top of page 303 on Instacart's S-1. The S-1 is actually an interesting read at first, but then it continues on for more than 300 pages. The extra chance to sell also requires one of the 5 days of the 10-day span to happen after an earnings call.

Tip #3 - Understand the timing of Taxation of Instacart RSUs

In previous articles we’ve written about how RSUs are taxed, but IPOs add a little variation to RSU taxation.

If you’ve been working for Instacart, you’ve likely been accumulating double-trigger RSUs. These RSUs are designed to be released to you once you’ve (1) worked at Instacart for some number of years, and (2) have stayed around long enough to experience a liquidity event. And lucky for you, ding ding ding, an IPO counts as one of those events.

On the date of IPO, your RSUs that have vested will be released to you. It’s at this moment that you will owe taxes to the IRS and those taxes will be based on the value set at the beginning of trading.

For example:

If you have 10,000 Instacart RSUs that were granted when the price was $2.50, but the value at the time of IPO is $30, you’ll now owe taxes on 10,000 x $30. Which is $300,000.

So you might be thinking, “If I can’t sell shares because of the Lockup, and I now owe taxes on $300,000, how am I supposed to pay taxes?”

That’s a great question. Glad you’ve been paying attention. We’ll address that next.

We've built an RSU Tax Calculator to help our readers get a rough guess at what taxes might look like. Feel free to take a look and create a copy in Google Sheets.

Tip #4 - Plan for taxes on your Instacart RSUs

Since we’ve just uncovered a potential tax problem, let’s discuss the solutions Instacart is likely going to offer to its employees. (We’ve previously written a detailed article on RSUs at IPO. Please feel free to read it if you’d like more information.)

Instacart and the people managing Instacart’s employee equity plan don’t want to leave their employees unable to cover the tax liability from Instacart RSUs. To do this, Instacart withholds RSUs to cover taxes.

Withholding Instacart Shares for Taxes

When a company withholds shares, it usually sells the shares immediately and sets the money aside for you to cover your tax liability. 

This is a great option for companies going through an IPO because it’s essentially a way to sell shares before the Lockup expires. It also helps ensure that even if the price of Instacart drops drastically, you won’t have to stress because that money will have already been set aside to cover the taxes! We anticipate that Instacart employees were given a choice between withholding at 22% or withholding at 37%.

A word of caution here: If you withhold at 22%, there’s a good chance that you’re actually being taxed at a percentage that’s higher than 22%. Although it’s not the end of the world, it is something important to be aware of so that you can work with a tax professional to understand how much more in taxes you’ll owe come tax time.

There are also state income tax considerations, so be sure to kind that in mind as well.

Tip #5 - Avoid checking the stock price daily

Now that' Instacart has IPOed, you’ll see the price of the company will fluctuate throughout the day. It’s tempting to track Instacart’s stock price, but for the sake of your mental health, we’d recommend limiting how often you check it.

We recognize that the temptation to keep checking will be strong especially with all the chatter that is likely to be going on on Teams chat, Slack channels, etc. Although it can be fun and exciting, it can also be draining, so it may be wise to take a break from the noise.

Once you’ve made a decision about your withholdings on Instacart RSUs and the company has IPOed, there’s really no need to check daily anyway - you have 180 days of waiting!

Based on more recent IPOs, we anticipate that there will be a lot of movement in Instacart’s stock. ARM’s latest IPO has been a success, but we’re still waiting for their Lockup period to end.

Tip #6 - Plan for the eventual end of IPO lockup

The process may seem to take forever, but eventually you’ll be able to sell your Instacart RSUs. While you’re waiting, we recommend that you use that time to sit down and make a thoughtful plan.

• Do you have debts that you need to pay off?

• Have you been saving for anything in particular?

• Does Instacart make up the majority of your net worth?

• How much Instacart equity is too much?

• Do you have other investments? Are you diversified?

• Do you want to sell if there’s an early opportunity to sell?

• Do you want to sell once the lockup is over?

Of course, your plans will vary based on your personal financial situation (and the future price of Instacart). We want to emphasize the importance of being intentional with your planning as you inch closer to the end of Lockup. This liquidity event has the potential to provide the kickstart you need for those future plans.

If you want to bounce some of your ideas off of us, we’re happy to be a sounding board.

Tip #7 - Don’t be afraid to consult a professional

We recognize that managing your Instacart RSUs through this IPO can be overwhelming and stressful. It’s likely you don’t just have RSUs so there’s probably a lot of things you’ll want to consider.

If you feel at all like you’re getting a little ahead of yourself on the subject, we highly recommend speaking with a professional. We’re happy to help and/or provide recommendations for financial advisors and tax advisors who can help guide you through this process.

Final Thoughts on Managing Instacart RSUs at IPO

This is going to be a super exciting time and you should consider yourself very lucky. There aren’t many companies that go from a small start-up to IPOing for billions of dollars. This is a unique opportunity for you to make the most of your Instacart RSUs and set yourself up for future success.

If you have any questions or have additional tips you feel we should add/expound on, please let us know!