What does early exercising stock options mean and what are the trade-offs?

Early exercise means buying your option shares before they've vested, which some startups allow. Combined with a timely 83(b) election, it lets you pay tax on the bargain element while it's near zero and start the long-term capital gains clock immediately, so nearly all future growth can be taxed at favorable rates. The upside is potentially huge tax savings if the company succeeds. The downsides: you spend cash now on shares subject to a repurchase right if you leave before vesting, the company could fail and your money disappear, and you must file the 83(b) within 30 days of exercise or lose the benefit. Early exercise suits very early employees facing a low strike and low FMV. The later you are, the larger the spread, and the worse the math.