Unacademy Changes ESOP Policy for Former Employees

Unacademy, a prominent test preparation platform, has revised its employee stock option plan (ESOP) for ex-employees, enabling them to exercise their options within 30 days of their exit, a notable change from the previous 10-year timeframe. An official notice communicated to departed employees indicated that the company’s board has sanctioned a one-time 30-day opportunity from the effective date of the new plan. Former employees are permitted to exercise all vested options accrued during their tenure. The correspondence also highlighted that, in accordance with Indian tax regulations, exercising vested options would incur an immediate tax obligation for the employees.

Valuation Details

Unacademy stated that the valuation considered for the exercise of ESOPs is derived from the latest assessment conducted by a merchant banker, which values the company at approximately Rs 2,650 crore (around $230 million). The firm pointed out that this valuation is below the total capital invested by its stakeholders and warned that there is no guarantee a future liquidation event would yield adequate returns for equity shareholders, including employees opting to exercise their options. Additionally, it was noted that preference shareholders possess greater rights than equity shareholders.

Recent Company Valuation Changes

Previously, Unacademy co-founder Gaurav Munjal had stated publicly that the firm’s valuation might have significantly dropped to below $500 million from its peak of roughly $3.5 billion in 2021. That year, Unacademy had raised $440 million in a funding round led by Temasek Holdings, which assigned a valuation of about $3.4 billion to the company.

Merger and Acquisition Discussions

In a statement shared by Munjal, it was noted that the company is currently involved in merger and acquisition discussions, valuing it at around Rs 2,650 crore through an all-stock deal without any cash component. He remarked that since the valuation is considerably below the more than $800 million raised by Unacademy, certain investors might invoke liquidation preferences, potentially rendering ESOPs worthless.

Munjal explained that, when liquidation preference is invoked, employee stock options could effectively become valueless, a result that the management aimed to avoid. The board was thus requested to consider a mechanism enabling departed employees to convert their options into common shares, allowing them to partake in any stock-based merger, even at a lower valuation, thereby ensuring equity with common shareholders.

Furthermore, he acknowledged that his own ESOPs are also subject to this same outcome and accepted responsibility for the prevailing situation.