Exploring Equity Trends in 2022: Secfis State of Stock Options Report

About 25% of the startups on Secfi’s platform cut their valuations last year

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Last year proved to be a difficult one for startups and their employees. VCs pulled back on investments, resulting in thousands of layoffs; company valuations either stagnated or declined due to the prolonged bear market.

Around a quarter of startups on the Secfi platform saw their fair market valuations drop in 2022, resulting in employee stock options being “underwater” for some (or all) workers.

Analysis of 1,502 late-stage startup funding rounds since March 2021 reveals an increase in flat and down rounds.

Startups that raised money in 2022 often kept their post-money valuations private, suggesting the actual number of startups whose valuations decreased over the last year could be greater than reported.

Employee stock options are an important part of startup compensation, yet underwater stock options can have a damaging effect on hiring and retention in the startup world.

Looking ahead, the data suggests that 2023 will continue to be challenging for late-stage startups.

The data suggests 2023 will be challenging for late-stage startups.

Underwater stock options

Analysis of 4,300+ stock option grants uploaded to the Secfi platform in 2022 reveals that nearly 25% of startups decreased their fair market valuations during this year.

Klarna’s valuation dropped 85% from $45.6B in mid-2021 to $6.7B when it raised new funding a year later, mirroring drops experienced by Instacart and Checkout.com without raising additional capital.

Stock options offer a potential for high returns but come with significant risks. They remain a powerful incentive to attract and retain employees in startups.

Carta’s 2018 employment analysis found that startup employees typically only stay for two years before moving on. Since 2020/2021, many workers have experienced the frustration of underwater stock options: their shares are now worth less than when they were hired.

The average Silicon Valley startup employee receives 12-14% of their salary in stock options, according to Carta. For example, a $150K annual salary translates to an additional $21K in equity compensation.

Startup success often leads to a rise in stock options’ value, even by several times. According to Secfi’s financial data from employees, these make up 86% of the average startup employee’s total net worth.

Retaining employees may require startup leaders to offer cash and retention bonuses, higher salaries, or a stock option repricing program. Underwater stock options can be an incentive for employees to seek better valuation growth from other startups.

The average cost to exercise stock options remains high

Despite economic difficulties, exercising stock options remains expensive.

In 2022, the average Secfi client needed $846K to exercise their stock options and cover taxes – with taxes making up the majority of the cost.

Startup employees often don’t exercise their stock options due to high costs, leading to failure.

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Kira Kim

Kira Kim is a science journalist with a background in biology and a passion for environmental issues. She is known for her clear and concise writing, as well as her ability to bring complex scientific concepts to life for a general audience.

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