Just to be clear, sounds like you are referring to the company that was acquired (not Google, whose stock is liquid). Few startups have Early Exercise of stock options. For those that do, if one has the cash to do the exercise and the willingness to put the cash into that illiquid startup stock, it behooves them to do it as soon as they can, so that there is no difference between their Strike Price and the Fair Market Value, so the tax owed is $0 when they file their 83(b) election. If Early Exercise is not available, one could exercise the options as they vest, but that is entails both the risk of both owing taxes (since FMV would be higher than strike price by that time) in addition to putting cash into illiquid startup stock-- all for a potential benefit of slightly lower tax rate (33%+ vs 20%) when the hope of both appreciation and liquidity is realized. That's the risky/dumb thing I was referring to. Alternatively, they could simply hold the option, which costs them nothing, and just pay the normal taxes (33%+) when exercising and selling.
"Alternatively, they could simply hold the option, which costs them nothing, and just pay the normal taxes (33%+) when exercising and selling."
This forfeits the tax advantages of an ISO. You don't need early exercise, you exercise when they vest, hold them for a year, and sell at long term treatment.
