Why Tech Founders Need a Financial Plan Before the Exit

Key Takeaways

• Most founders have no financial plan until after the exit, which is too late for major tax savings
• Pre-exit planning can save $500K+ in taxes on a $5M+ liquidity event
• QSBS (Section 1202) requires holding stock for 5 years to exclude up to $10M in gains
• Setting up trusts, donor-advised funds, and entity structures before the exit is critical
• Having a plan doesn't mean it's set in stone. It means you're not scrambling when the wire hits.

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Why Do Most Founders Skip Pre-Exit Planning?

Most founders skip pre-exit financial planning because they're focused on building the company. And I get it. You're heads down, grinding, trying to hit product-market fit or close your Series B. The last thing on your mind is tax optimization.

But here's the problem. By the time the exit happens, most of the best tax strategies are off the table. You can't go back in time and file an 83(b) election. You can't retroactively qualify for QSBS. You can't set up a trust after the money is already in your account.

I've seen founders leave hundreds of thousands of dollars on the table because they started planning after the deal closed. That's money you worked years for, just gone to taxes that could have been avoided. Learn more about common fintech founder tax mistakes.

What Does Pre-Exit Planning Actually Look Like?

It's not as complicated as it sounds. Realistically, it comes down to a few key moves that need to happen 12 to 24 months before any potential exit.

First, you need to understand your equity structure. Are your shares qualified small business stock (QSBS) under Section 1202? If they are, and you've held them for at least 5 years, you could exclude up to $10 million in capital gains from federal taxes. That's potentially $2 million in savings right there, according to the IRS guidelines. Serial founders have additional QSBS strategies worth exploring.

Second, you need to look at your entity structure. Are you set up as a C-corp? S-corp? LLC? Each has different tax implications at exit. A study from the National Bureau of Economic Research found that entity structure is one of the most impactful variables in exit tax outcomes, but most founders pick their structure based on what their lawyer suggested at incorporation and never revisit it.

Third, think about trusts and gifting strategies. If you're planning to share wealth with family, doing it before the exit when your stock has a lower valuation is way more tax-efficient. You can gift shares worth $100K today that might be worth $2M at exit. The gift tax is based on the value at the time of the gift, not the future value.

How Much Money Are We Actually Talking About?

Let's run some real numbers.

Say you're a founder with a $5 million exit. Without any planning, you're looking at roughly 20% federal capital gains tax plus 3.8% net investment income tax. That's $1.19 million to the IRS.

Now, if you'd set up QSBS properly and held for 5 years, you could exclude the full $5 million from federal taxes. That $1.19 million stays in your pocket.

Or say you put $1 million of pre-exit shares into a donor-advised fund. You get a charitable deduction at the current fair market value, avoid capital gains on those shares, and direct the charitable giving over time. According to Fidelity Charitable, donor-advised fund contributions of appreciated stock increased 28% in 2025, largely driven by tech founders doing exactly this.

The point is, these aren't exotic strategies. They're well-established tools that just need to be set up before the liquidity event.

What About State Taxes?

This is where it gets interesting, especially in 2026. Washington state is currently considering bills (HB 2292 and SB 6229) that would impose a 7% to 9.9% capital gains tax on QSBS gains at the state level. Right now, QSBS is tax-free federally, but states can decouple from that.

If you're a Seattle-based founder, this could mean an extra $500K to $1M in state taxes on a $10M exit that you thought was going to be tax-free. Several other states are watching Washington's approach closely.

The takeaway? Don't assume your federal tax strategy covers you at the state level. You need to look at where you live, where the company is incorporated, and potentially whether relocating before the exit makes financial sense.

When Should You Start Planning?

Honestly, the best time to start is when you raise your Series A. That's when equity structures are still flexible and the cost of making changes is low.

But realistically, most founders don't think about this until a deal is on the table. If that's you, it's not too late. Even 6 months of planning can make a meaningful difference.

The worst time to start planning is the day the wire hits your account. At that point, you're just doing damage control.

What's the First Step?

Talk to a financial advisor who actually works with founders. Not your buddy's accountant. Not the advisor your parents use. Someone who understands equity compensation, startup exits, and the specific tax rules that apply to you.

The plan doesn't have to be perfect. It doesn't even have to be final. But having something in place, even a rough framework, is infinitely better than winging it when millions of dollars are on the line.

Because realistically, you've spent years building something valuable. It makes sense to spend a few months making sure you actually keep as much of it as possible, right?

Summary

Pre-exit financial planning is one of the highest-ROI activities a tech founder can do, but most skip it because they're focused on the business. The key moves, qualifying for QSBS, optimizing entity structure, setting up trusts, and understanding state tax exposure, all need to happen before the exit. Start early, get the right advisor, and don't leave money on the table just because planning felt like a distraction. You've earned that money. Keep it.