As time to IPO increases, startups should rethink options packages to make them more valuable
Aaron Harris / Aaron's Blog : Tweets: @groditi and @carnage4life Tweets: Guillermo / @groditi : On stock-options, delayed IPOs and liquidity prixes. #RecommendedReading // We need to rethink employee compensation http://www.aaronkharris.com/ ... Dare Obasanjo / @carnage4life : The downside with startups being unicorns with $1B+ valuations is that options are no longer an attractive incentive http://www.aaronkharris.com/ ...
Context & Ripple Effects
When Aaron Harris wrote this in 2015, he was flagging a problem that later coverage confirmed and sharpened: as growth capital lets companies stay private longer, the standard four-year option grant loses its punch because the liquidity event keeps moving out of reach. Steve Blank later argued that delayed IPOs and founders taking Restricted Stock Awards had outright 'ruined the social contract' of startup equity, while data showing 75% of top-performing IPOs went public below $1B undercut the unicorn math that made big option packages look valuable.
First-order effects
- Startup employees holding late-stage options face a longer wait for any payout, making cash compensation relatively more attractive at exactly the moment unicorns compete hardest for senior talent.
- Founders and HR leads must redesign grant structures — refresh grants, earlier exercise, or RSU-like instruments — or accept rising attrition among employees who can price the illiquidity discount.
Second-order effects
- Compensation benchmarking becomes infrastructure: tools like Option Impact, built on anonymized salary data from ~2,600 companies, give VCs and their portfolio companies the market data needed to defend richer or restructured offers.
- Founders gain leverage to restructure their own economics alongside employee comp, as seen when US tech founders began extracting large pay packages tied to going public despite VC objections.
Third-order effects
- If private stays the destination rather than the waiting room, startup equity stops functioning as a wealth-equalizer for rank-and-file employees and concentrates upside in founders and late-stage investors — pressuring regulators and secondary markets to supply liquidity alternatives.
- IPO pricing itself becomes a negotiation over who bears the illiquidity cost, visible in Figma where Dylan Field accepted $33/share rather than a higher price to lock in long-term institutional holders.
The trend: As companies stay private longer, startup compensation is shifting from classic option grants toward structures that promise earlier or guaranteed liquidity.