Unacademy’s Gaurav Munjal clarifies on ESOP exercise and valuation

Test preparation platform Unacademy has amended its employee stock option plan (ESOP) for former employees where they can now exercise their options within 30 days of exit, compared to 10 years earlier.

According to an official communication sent to exited employees, the company’s board has approved a one time 30 day window from the effective date of the revised plan. Former employees can exercise all vested options earned during their tenure. The email also noted that, under applicable Indian tax laws, the exercise of vested options would trigger an immediate tax liability for employees.

Unacademy said the valuation used for exercising ESOPs is based on its latest assessment by a merchant banker, which values the company at around Rs 2,650 crore (approximately $230 million). The company added that this valuation is lower than the total capital invested by its investors and cautioned that there is no assurance any future liquidation event would generate sufficient proceeds for payouts to equity shareholders, including employees who choose to exercise their options. It further stated that preference shareholders have superior rights over equity shareholders.

Earlier, Unacademy co-founder Gaurav Munjal had publicly said that the company’s valuation may have fallen sharply to below $500 million from its peak of around $3.5 billion in 2021. Unacademy raised $440 million in 2021 in a funding round led by Temasek Holdings, which valued the company at about $3.4 billion.

In a statement shared by Munjal, he said the company is currently in merger and acquisition discussions at a similar valuation of around Rs 2,650 crore through an all stock deal with no cash component. He said that since the valuation is well below the over $800 million raised by Unacademy, certain investors would be entitled to apply liquidation preference, which could effectively render ESOPs worthless.

Munjal added that when liquidation preference is enforced, employee stock options effectively become zero, and that the management did not want that outcome.

“The board was therefore requested to explore a mechanism that would allow exited employees to convert their options into common shares so they could participate in any stock based merger, even at a lower valuation, providing parity with common shareholders,” said Munjal.

He also said his own ESOPs are subject to the same outcome and acknowledged responsibility for the situation.