“Sell everything you have vested”
Raanan Cohen learned the hard way what happens when employees keep waiting for their startup shares to become worth even more. Now he is trying to convince others to take some money off the table.
“Sell everything you have vested.”
That is the sweeping advice Raanan Cohen now gives almost every employee or entrepreneur who reaches the point where they can exercise shares or options. It doesn't matter whether the company is a young startup or Nvidia, and it doesn't matter how promising its future appears.
Cohen has been on the other side of that decision. He once had the opportunity to sell shares in a company he founded for $10 million. He decided to wait for more, watched the company's fortunes collapse and saw the money disappear. Since then, he has made it his mission to persuade others not to repeat his mistake.
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Raanan Cohen (right) and Deborah Cohen.
(Photos: Michal Shiran Shemesh, Gilad Bar Shalev)
Two weeks ago, Cohen appeared on the “Psychology of Money” podcast, where he laid out his advice without much hesitation.
“Sell everything you have vested, shares that have matured and become available, no matter whether they went down or up. Sell it and invest it in something else,” he said. “The mechanisms always make sure that the employee has more equity that is unvested, so that he doesn't lose the upside.”
His argument is that employees tend to move the goalposts as their wealth grows.
“When an employee is in a hot company and has equity that can pay off his mortgage, he says, ‘Why should I pay off the mortgage and take it out if in a moment it will be worth a penthouse?’ And if he has the penthouse, he says, ‘I'll leave it on the roulette wheel so that it becomes a villa. Just a little more and that's it.’ This is the hedonistic adaptation that we live in, and the number is constantly changing.”
“Just a Little More and That's It” is also the title of the book Cohen published last year. The title is personal. That “little more” once cost him, at least on paper, $10 million.
Cohen founded MobileMax, a company that developed and produced software enabling discounted international mobile calls. The company went public on the Tel Aviv Stock Exchange in 2007.
At a time when MobileMax was performing well, Cohen received an offer to sell some of his shares for approximately $10 million. He turned it down, convinced that the company could eventually reach a $1 billion valuation.
The bet went badly.
The market changed, partly with the emergence of smartphones and companies such as Apple and Google. MobileMax collapsed and its shares lost their value. Cohen, who could have realized a life-changing fortune, was left with nothing, four children and a mortgage.
In retrospect, he sees the decision as an example of precisely the psychological trap he now warns others about. No matter how high the number gets, there always appears to be another number just around the corner.
“Not a week goes by that both entrepreneurs and employees don't write to me: ‘You wrote our story, but ours didn't get published.’ There are countless cases like this. They don't talk about it because no one writes a book about it and publishes it in the media, and it's terrible.”
One message particularly stayed with him.
“Someone wrote to me: ‘I'm writing to you from Thailand. Six years ago I had such an incident, and since then I've been in therapy, on pills, and I feel now that it's not just me, so maybe I can heal from it.’ It traumatizes people. It has an impact on their family and their lives.”
The experience has shaped what Cohen now describes as an “emergency room” for entrepreneurs. He says people can call him 24/7, and one of the questions he asks is whether they have an opportunity to sell shares.
“Employees get RSUs and options and most of the time it goes to waste, but there are cases where they're in a successful company and you can exercise it. My first company was like that too. We went public on the stock exchange and no one sold, because we felt like we were on a rocket going to the moon.”
The thinking, he says, is familiar.
“People say, ‘If the share is now worth 20, then why sell if it could soon be worth 40?’ Or, ‘Last time my friend sold and I saw how he lost out.’”
A second chance with Bringg
Cohen eventually got what he calls a “second chance.”
In 2013, he founded Bringg with Lior Sion. The company developed technology for managing complex delivery and logistics systems for the retail, food and logistics industries and eventually reached a valuation of $1 billion.
This time, Cohen had the opportunity to sell shares, and he did not wait for “a little more.”
Even when people around him told him he was selling too early and that Bringg could eventually be worth $5 billion, he decided that he had learned his lesson.
Asked what he would tell his younger self, Cohen is blunt.
“You were arrogant, you were stupid. Luckily, I got a second chance, and I was able to fix it.”
That experience also informs his view of the risks facing employees in high tech. He argues that people often underestimate how heavily their financial lives are already tied to the company they work for.
“High-tech employees are not aware that they are doubling down on the risk of the company they work for. Because if I now work for a company or a startup, it's not just that I have RSUs and options that depend on the company's success, but also my salary. Therefore everything depends on the company's success.”
“If the company fails, not only will my options collapse but also my source of income. Therefore, if there is something vested, take it off the table, and if you still want to invest it, then diversify and invest in other investment avenues or in other companies. Diversify.”
Cohen admits that his advice is intentionally aggressive.
“This is the recommendation that I really aggressively try to convince employees and entrepreneurs who reach this intersection, and many times I fail.”
The reason, he says, is psychological rather than financial.
“It's hard to understand the feeling of someone who sees how the company doubles its value and the value goes up and up,” he said. “He also sees cases of an employee who was responsible and sold, and after six months the value went up, and he was upset that instead of a vacation he could buy a car.”
Cohen says he saw the same behavior among employees at his publicly traded company.
“No one wanted to sell because they were sure that the company would continue to rise. Then no one sells, and it seems normal that no one sells. And not only that, some also use their own money and invest in the company. Crazy things.”
He says he recently spoke to an entrepreneur who could have realized $30 million.
“He lives in a rented apartment with children, and I'm trying to convince him to sell, but I don't think I succeeded. From the outside it seems illogical, but when someone is on a rocket like that, it's like being on a trip, and I was there.”
Another young employee challenged him directly.
“One even said to me, ‘You used to have balls and you became a coward. The company is on its way to the clouds. What are you telling me to stop and sell?’”
Cohen sees this as a recurring cycle.
“What's amazing is that after every market crisis, everyone always thinks that everyone has learned their lesson, and next time when it's high, they'll know not to be on the trip. But when it happens again, everyone goes back to hallucinating.”
Cohen's advice is deliberately sweeping.
Asked whether it applies even to a company such as Nvidia, he doesn't hesitate.
“Of course it's sweeping. There used to be Nokia, and there was BlackBerry. You have to understand that every company will end someday. Even the Ottoman Empire collapsed, and Lehman Brothers collapsed after 150 years. Google's day will come, and Nvidia's too.”
The question, he says, is whether employees can recognize that they have already accumulated enough wealth before the market changes.
“If there is fruit on the tree, take at least one apple, take a big bite and nourish yourself, because if you wait too long, in the end the fruit will rot and there will be nothing left.”
Even taxes, he argues, should not be allowed to become an excuse for holding concentrated positions indefinitely.
“When it goes to zero, there is no tax. You have to put this in context: we're only talking about a part, and usually not even a major part, of the equity.”
“As a philosophy, I highly recommend exercising along the way. If I ended up selling at the peak, then it turns out that I gave up maybe half of the upside, but I increased the level of security by an order of magnitude.”
He argues that employees are rarely truly selling everything because their compensation mechanisms continue to provide new equity.
The greater danger, in his view, comes when an employee decides to sell only after a stock has already begun falling.
“If the stock is now at $72 and an employee hasn't sold and is on the fence, and the stock goes up and after that starts to fall and reaches $60, what happens is that the employee freezes and realizes that he needs to sell, but waits for it to go up to 72. And it goes down to 59.”
“People freeze and develop all kinds of theories, and it's terrible. It's better to make a decision.”
Deborah Cohen, a financial planner and owner of a family office, disagrees with Raanan Cohen's all-or-nothing approach.
Her recommendation is not to hold indefinitely, but also not necessarily to sell everything immediately.
“It doesn't matter which company you own the stock in. The idea is to create some kind of plan for selling it in stages over a period of time,” she said.
“If you have 2,000 shares in a certain company and you want to reduce the position to zero, then decide that for a period of time you will sell a certain amount of shares every quarter. That's my approach.”
She points to the psychological damage that can also come from selling too early.
“Employees from Wix who sold their stock at $16 at the time, or those from Microsoft who sold shares at $32, these are things that can haunt you for the rest of your life, making you say, ‘What a jerk I was. Why did I sell?’ People don't sleep at night. They beat themselves up.”
Where Raanan Cohen's experience leads him to prefer the risk of selling early, Deborah's approach is designed to reduce both risks, the risk of holding too long and the risk of missing out on a future surge.
“I always tell my clients that we have no idea what will happen, so we always build a strategic plan,” she said.
The process begins with looking at the company and trying to assess its prospects, but the goal is then to remove emotion from the decision.
“From that moment on, the idea is to disconnect psychology and decide on a strategic plan of trickle-down. It could be over a year, two, three years, and decide that blindly, no matter what the price of the stock is, we sell X shares once a quarter.”
The objective is not to predict the peak.
“We're modest and don't know what will happen. We want to establish some kind of rate over a period of time.”
She recently spoke with an employee at Elbit who had sold a large amount of stock before the company's shares surged.
“It hurts afterwards to live with how much you lost,” she said. “There are many who expect Intel stock to move, certainly if China invades Taiwan, but even if it doesn't. But that doesn't mean you have to get rid of all the goods and then beat yourself up for the rest of your life.”
“That's why I don't agree with this method. I would rather build a plan that neutralizes our psychology, so that we can sleep properly at night. No matter if the stock takes off or crashes, we have no idea, and we have to be very modest.”
Both agree that taxes should not be the primary reason to hold concentrated equity.
Deborah argues that the more important consideration is the concentration of risk and the timing of the tax year.
“I think that tax considerations are secondary and aren’t the decisive factor,” she said. “After 24 months, the tax structure of each share is already locked in, and a split sale doesn't lower it.”
What can change is the tax year. A large realization in a single year can push an employee into a higher marginal tax bracket, making the timing of sales across tax years a legitimate consideration.
Raanan Cohen's own story is ultimately less about stocks than about the psychological difficulty of knowing when enough is enough.
The year after MobileMax collapsed was difficult.
“What happened to me is my greatest gift,” he said. “The year after the fall, when I realized what I had done to myself and my family, was very complex.”
“I would go out for a run in the morning and swear to the universe that I understood what was important, and all I wanted was financial security for my family.”
But even that lesson was tested again at Bringg.
“I admit that the oath was challenged with Bringg, because once again I felt like the sun was shining out of my ass, but the scar was strong enough for me to know how to quit.”
Cohen's book has since been translated into English. He has also completed a screenwriting course and is writing a film adaptation, which he describes as “The Wolf of Wall Street, the Startup Nation version.”
He continues to advise entrepreneurs and employees, trying to persuade them to do something that is deceptively difficult in an industry built around the promise of getting richer tomorrow.
“Thanks to the scar, I realized that there are more things in life than chasing numbers.”
