Luminary Cloud chooses Carta for Qualified Small Business Stock (QSBS) attestation letter and Equity Advisory

Luminary Cloud was founded to help companies accelerate engineering cycles for faster insights. As the company scaled to 80+ people and competed for talent against larger companies, it wanted to help prospective and current employees understand how its equity compensation plan had a potential upside that bigger companies couldn’t match.

Luminary Cloud is a qualified small business, an IRS designation that can lead to significant tax savings for employees holding the company’s qualified small business stock. Luminary Cloud offers a six-year grant with no “cliff”—the one-year period employees usually have to wait to vest any shares—and gives employees the option to “early exercise” their unvested shares.

The QSBS exclusion is a U.S. tax benefit that permits eligible shareholders of certain qualified small businesses to enjoy up to $10M of federal capital gains tax-free if shares are held for five years. But the requirements to qualify for QSBS are nuanced.

“Most people have never heard of QSBS or early exercise—so we wanted an easier way to educate our employees on how they worked and to help them understand that these things could have a significant impact on the value they got from their equity,” said Carl Olson, Luminary Cloud’s senior director of finance and administration.

Challenge

Carl wanted to obtain a QSBS attestation letter—the document that shows the company meets the stock requirements for QSBS—so employees could present it to the IRS when needed. But “a lot of places were asking $20,000 just for the letter, which didn’t seem to offer much value when we still had to field all the employee questions.”

Employees were missing out on huge tax savings because they didn’t understand QSBS and early exercising. “I couldn’t answer a lot of the questions I was getting because I’m not legally allowed to give tax advice,” Carl said.

Solution

Since Luminary Cloud’s cap table and 409A valuation are managed by Carta, getting and distributing the QSBS attestation letter to employees was simple.

Helping employees understand their equity benefits became simple, too: Carta’s Equity Tax Advisors help employees understand QSBS, early exercising, and more by providing company-wide webinars customized to Luminary Cloud’s equity plan and unlimited 1:1 sessions to all employees. In the 1:1 sessions, employees can ask individual tax questions and get customized tax scenario modeling.

Results

Over a third of vested employees have had a 1:1 session with an Equity Tax Advisor, with an average customer satisfaction score of 4.9/5.

“Having Equity Advisory is a huge benefit to our employees and me. Now, I have a clear place to offload tax and equity questions, so I don’t have to sit in that sticky middle of what I can say vs. what I can’t say.”

When employees ask questions, Carl just sends the recording of Carta’s educational webinar covering their equity plan and a link to book a 1:1 session. “It feels great to direct employees to an Equity Tax Advisor who knows QSBS and early exercising intimately and can legally answer their individual tax questions.”