Unacademy’s Group CEO and cofounder Gaurav Munjal has stepped into a brewing controversy over the edtech startup’s abrupt ESOP policy change, assuring former employees that the move protects their interests amid ongoing M&A talks at a steeply discounted valuation. The clarification comes after ex-staffers vented frustration online, calling the 30-day exercise window a “financial burden” that undermines years of hard-earned equity.
The Policy Shift Sparks Backlash
Unacademy recently amended its Employee Stock Option Scheme, slashing the exercise period for exited employees from 10 years to just 30 days. Under the new rule, former staff must pay the exercise price—often substantial—and cover immediate taxes to claim vested shares, even though those shares remain illiquid with no ready market. One ex-employee publicly slammed the change as making “the startup industry look bad,” arguing ESOPs should reward long-term loyalty, not force a tough choice between upfront cash outlays or total forfeiture.
The timing amplified concerns. Unacademy notified exited employees to exercise at a INR 2,650 crore valuation, far below the $3.4 billion peak it hit in 2021 after raising over $800 million from investors like SoftBank and Temasek. Social media buzzed with accusations of the company squeezing ex-workers to avoid dilution ahead of a potential sale.
Munjal’s Internal Clarification
In an internal note accessed by media, Munjal explained the rationale as employee protection during delicate M&A negotiations. Unacademy is in advanced talks for an all-stock deal at around the same INR 2,650 crore valuation, meaning no cash payout for founders or investors. Late-stage shareholders, who invested at higher valuations, could invoke liquidation preferences—standard clauses prioritizing their returns—which would wipe out ESOP value entirely, leaving employees with nothing.
To counter this, Munjal said the board approved letting exited employees exercise now, converting options to common shares. This positions them alongside other common shareholders in the merged entity, ensuring “parity” and some upside potential. “Even my ESOPs, which are almost half of my shareholding, are in the same boat,” he added, framing it as a collective safeguard rather than a cash grab. Without action, he warned, ESOPs “would all go down to zero.”
Inc42 has accessed the information shared by Gaurav Munjal.
Why the Change Makes Business Sense
ESOP exercise windows vary across startups, but 90 days post-exit is common; 10 years is unusually generous and rare in down rounds. Unacademy’s old policy exposed the company to “dead equity”—unexercised options diluting active stakeholders indefinitely. The 30-day push aligns with M&A realities: buyers demand clean cap tables before closing, and liquidation preferences (often 1x-2x invested capital) kick in first during low-valuation exits.
For employees, exercising means betting on recovery. At INR 2,650 crore, shares might seem cheap if Unacademy rebounds via consolidation (edtech M&A has heated up post-2023 funding winter). Taxes hit hard upfront—potentially 30-40% on the spread between exercise price and fair market value—but deferral via 83(b) elections or loans could mitigate. Still, many ex-staff lack liquidity, turning equity into a forced call.
Broader Lessons for India’s Startup Ecosystem
Unacademy’s saga spotlights ESOP pitfalls in a tough market. Edtech valuations cratered 80-90% from peaks as growth slowed and profitability pressures mounted; Unacademy itself cut 1,000 jobs in 2022-24 and pivoted to enterprise/B2B. Similar tensions hit Byju’s (layoff-linked ESOP clawbacks) and other unicorns where over-optimistic grants now clash with down-round math.
Founders like Munjal walk a tightrope: honoring past promises without torpedoing deals. Employees must read fine print—vesting cliffs, exercise deadlines and liquidation waterfalls—at joining. Investors push for “use it or lose it” to protect downside. In all-stock M&A, common shares (post-exercise) often fare better than underwater options.
What Ex-Employees Should Do Next
Munjal’s note urges quick action within the window. Options include negotiating extensions (if on good terms), pooling with peers for bulk exercise, or seeking tax advice on loans/structures. If the deal falls through, shares retain speculative value in a private company eyeing IPO revival.
Unacademy frames this as “fair opportunity for all stakeholders,” but trust hinges on transparency. As Munjal put it, it’s their “best way to provide some value” amid headwinds. For a sector built on dreams of moonshot equity, this is a sobering reminder: paper wealth evaporates without liquidity—and timing is everything.
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