Startup Employees Are Saying No to Their Vested Equity

Startup employees don't care much about equity.

At least, that's what many of them are telling us with their exercise decisions.

In order to become real company stock, startup equity has to jump two hurdles. First, it has to vest - meaning the employee has to remain at the company for a specific amount of time.

Second, it has to be exercised, or purchased by the employee.

The chart below shows the quarterly exercise rate for vested options since 2017 across US employees whose companies use Carta. We split the exercise rate into three separate lines to reflect the "status" of the option when it expired.

𝗜𝗻-𝗧𝗵𝗲-𝗠𝗼𝗻𝗲𝘆: options where the strike price at expiration is higher than when it was issued.

𝗔𝘁-𝗧𝗵𝗲 𝗠𝗼𝗻𝗲𝘆: options where the strike price at expiration and issuance was identical.

𝗨𝗻𝗱𝗲𝗿𝘄𝗮𝘁𝗲𝗿: options where the strike price at expiration is below the strike at issuance.

Most stock options have a 10-year expiration window—but that gets cut short if the employee leaves the company, either by choice or through layoff. So you can think of this chart as showing "what percent of employees exercise their options when they leave".

In the pre-boom period, exercise rates hovered around 44% for in-the-money options. Today that same figure has fallen to 33%.

Now this drop is probably to be expected. Startups have had a rough go over the past few years with down rounds, layoffs, and curtailed fundraising.

But there are some signs things are changing. Super late-stage secondary activity has picked up. The IPO forecasts for 2025 are getting brighter. ServiceTitan just popped on public day 1.

Equity in startups has this beautiful promise to it - but paying money now for the chance of a windfall in the future is not an easy sell.

#startups #employeecompensation #equity #ISOs #vested