Private Equity Double-Trigger Model
Require both vesting and liquidity before treating private shares as spendable wealth
- Difficulty
- Easy
- Time to result
- ~ongoing to results
- Steps
- 5
- Confidence
- 97%
The Private Equity Double-Trigger Model separates legal or contractual ownership from usable wealth. First, the employee must satisfy the vesting condition and earn the shares. Second, the company or market must produce a liquidity event in which shares can actually change hands. Passing only the first trigger can leave the employee with substantial net worth on paper but no proceeds to spend, diversify, or use for taxes and other obligations. The model therefore treats vested private equity as captive until both conditions are present. In practical planning, employees map the vesting schedule, identify realistic transaction paths, and keep unliquidated shares outside the pool of dependable liquid assets rather than assuming an eventual exit will happen on schedule.
Origin
Extracted from Masters in Business through Joey Fishman's explanation of double-trigger events in privately traded companies.
Core principles
- 01Vesting creates ownership but not necessarily liquidity
- 02Private shares become realizable only when a market transaction supplies liquidity
- 03Paper net worth can remain captive indefinitely
- 04Financial plans should distinguish vested value from spendable proceeds
How to run it
- 1
Classify the shares
Determine whether the company is private and whether a broad, liquid market exists for the shares.
Pro tip Treat an expected future exit as a possibility, not current liquidity.
Watch out Do not apply public-market assumptions to captive private shares.
- 2
Verify the vesting trigger
Confirm which shares have vested and when the remaining shares are scheduled to vest.
Pro tip Use the actual plan documents rather than a headline grant amount.
Watch out An unvested award has not passed the first trigger.
- 3
Verify the liquidity trigger
Identify an actual transaction, buyer, exchange, acquisition, or other event that permits the shares to be sold.
Pro tip Ask what transaction must occur and who would buy the shares.
Watch out A high paper valuation does not itself create a market.
- 4
Separate captive wealth
Exclude shares that have not passed both triggers from dependable liquid wealth and near-term spending plans.
Pro tip Track vested private equity in a separate scenario rather than deleting it from the plan entirely.
Watch out Counting captive value as available cash can create obligations the employee cannot fund.
- 5
Update at each event
Recalculate the position when shares vest or a credible liquidity path appears, closes, or disappears.
Pro tip Revisit tax and diversification planning before a known transaction completes.
Watch out Liquidity timing may not match the employee's preferred timeframe.
In the wild
An employee has fully vested shares in a private startup, but the company has no acquisition, public offering, or approved secondary sale. The first trigger has occurred, while the second has not. The employee records the position as captive paper wealth and does not use it to fund a near-term home purchase.
→ The financial plan remains viable even if no liquidity event occurs.
A private company agrees to a transaction that will buy employee shares. An employee checks how much of the grant has vested before closing and counts only the portion that passes both the vesting and liquidity triggers in the proceeds scenario.
→ Only equity that satisfies both conditions enters the employee's liquid-wealth plan.
Common mistakes
Equating vesting with cash
Vesting passes the first trigger but does not create a buyer or transaction for private shares.
Assuming an exit will arrive
Private equity can remain captive because a liquidity event may happen later than hoped or not happen at all.
Spending paper net worth
A plan becomes fragile when it relies on private-share value that cannot yet be realized.
Is it for you?
Best for
It is best for employees and advisers assessing private-company equity compensation in personal financial plans.
Not ideal for
It is not ideal for freely tradable public shares, where ordinary market liquidity is already available.
From the transcript
“They call these double trigger events.”
“One is you need to vest, so that's the first trigger, and the second trigger is there need to be a liquidity event.”
“you could, you know, theoretically, just have a bunch of network on paper that's captive and never gets realized because there's just no market for…”
From the episode
At The Money: Getting Paid in Company Stock