Unacademy Reduces ESOP Exercise Period for Ex-Employees to 30 Days

The employee stock option plan (ESOP) of test prep business Unacademy has been modified to drastically reduce the exercise window for departed employees. In the past, departing employees had up to ten years to buy the stock options they had accrued while working for the company. They now have 30 days after leaving the company to comply with the updated rules.

The action comes as Unacademy and Upgrad, founded by Ronnie Screwvala, are in talks to buy the edtech business founded by Gaurav Munjal for over $300 million, which is more than 90% less than the $3.4 billion it previously funded in 2021. Unacademy's board has approved a one-time 30-day window from the modified plan's effective date, allowing departing employees to buy all of their accrued stock options, according to an email sent to former employees. "Any exercise of your vested options will result in an immediate tax liability on you in accordance with applicable tax laws in India," it stated. Converting stock options into actual shares is known as exercising.

Why Shareholders of Unacadmey opting for Liquidation?

Munjal confirmed the development by telling a media outlet that Unacademy is in the midst of M&A talks for an all-stock acquisition valued at INR 2,650 crore, or around $300 million. He said that shareholders, particularly those who came at a higher valuation and will lose money in an M&A at this value, had the right to apply liquidation preference because the valuation is far lower than the money raised by Unacademy, which is over $800 million.

Furthermore, Munjal stated that ESOPs essentially become 0 when liquidation preference is correctly implemented. However, the business does not want it to occur. Therefore, even if there is a stock offering at a reduced valuation, it asked the board to find a means to guarantee that employees can obtain shares in the company. The Bengaluru-based startup Unacademy last secured $440 million in financing headed by Temasek of Singapore, which valued the company at $3.4 billion.

A provision known as "liquidation preference" stipulates that when a business is sold, merged, or shut down, investors receive payment before founders, staff, or ESOP holders do. In the instance of Unacademy, investors who made higher-priced investments may invoke liquidation preference because the transaction is anticipated to occur at a substantially lower valuation. SoftBank, Nexus Venture Partners, Peak XV Partners, and General Atlantic are among the companies that support the business.

Munjal and Saini Exit From Their Active Role

In September, Munjal and fellow cofounder Roman Saini left their active positions at Unacademy and turned the company over to Sumit Jain. Munjal is currently concentrating on the AirLearn language learning app. Munjal and Saini had cofounded Unacademy as a YouTube channel ten years prior, together with Hemesh Singh, who departed the firm in June 2024. Following the communication, a number of former Unacademy employees criticised the company's choice on social media.