Bengaluru-based edtech company Unacademy has drastically reduced the time former employees have to exercise their vested employee stock options (ESOPs). The company has cut the exercise window from up to 10 years to a one-time period of just 30 days. This change was communicated to former staff via email and has sparked concern among those affected.^[1][2][3] The new policy requires former employees to decide by January 19, 2026, whether to purchase their earned stock options or forfeit them.^[3][4] ### Valuation Drop and Merger Talks Drive Change Unacademy stated that the decision stems from its current valuation and ongoing merger and acquisition (M&A) discussions.^[1][2][5] The company is reportedly pursuing an all-stock deal, meaning no cash would be involved for founders or investors.^[2][5] This situation is complicated by Unacademy's significantly lower valuation. Its latest assessment for ESOP purposes stands at approximately Rs 2,650 crore, or about $230 million to $295 million.^[1][2][6][5] This is a sharp decline from its peak valuation of around $3.4 billion to $3.5 billion in 2021, a period when the company raised substantial funding from investors like SoftBank.^[2][6][5] Unacademy CEO Gaurav Munjal clarified the company's position in an email to employees. He explained that Unacademy has raised over $800 million in total capital.^[2][5][7] With the current lower valuation, shareholders who invested at higher valuations have the right to apply "liquidation preference."^[1][2][5] If this preference were strictly enforced, ESOPs for employees could effectively become worthless.^[1][7] Munjal said the company requested its board to find a way for employees to still gain shares.^[6][7] He stated the 30-day window is the "best way to provide some value" to former employees' contributions and prevent their ESOPs from becoming zero.^[1] He also added that his own ESOPs are in the same situation.^[1] ### Immediate Tax Burden for Former Staff The shortened exercise window places a significant financial burden on former Unacademy employees. Exercising vested stock options in India triggers an immediate tax liability.^[2][3][4] This "perquisite tax" is calculated based on the difference between the fair market value of the shares and the exercise price, even if the employee has not yet sold the shares or received any cash.^[4][8] This means former employees must pay taxes out of pocket within a short period or risk losing their vested options entirely.^[2][4] Many former employees voiced their criticism on social media platforms like X (formerly Twitter). They highlighted the challenge of having to "cough up a huge amount to pay taxes" without a clear path to liquidity.^[4][7] The sudden change from a decade-long window to just 30 days has left many feeling unfairly treated.^[2][4] Unacademy maintained that the amendment aims to "ensure parity" between former and current employees.^[3][4] It described the 30-day period as a one-time opportunity for exited employees to align with existing shareholders by converting their options into equity.^[3][4] ### Broader Implications for Indian Startups The situation at Unacademy highlights a recurring challenge with ESOPs in the Indian startup ecosystem. While ESOPs are a popular tool to attract and retain talent, their real value and tax implications can be complex.^[9][10] Historically, many startups have offered long exercise windows, sometimes up to 10 years, allowing employees to wait for a liquidity event like an IPO or acquisition before exercising their options and incurring tax.^[1][11] However, as the market matures and funding becomes tighter, companies are re-evaluating these policies. The immediate tax liability upon exercising options is a major concern for employees.^[9][8] Experts note that employees often underestimate this upfront cost, especially for unlisted companies where shares are illiquid.^[9][8] The lack of clear exit opportunities in the Indian startup market further complicates matters, as employees may pay taxes on shares they cannot easily sell.^[11] ### Unacademy's Financial Landscape This policy change comes amid a challenging period for Unacademy and the broader edtech sector. The company has been undergoing significant cost-cutting measures and layoffs over the past few years as the pandemic-induced boom in online education subsided.^[12][13][14] Unacademy has focused on achieving profitability, with CEO Gaurav Munjal emphasizing the need for at least four quarters of profitability before a potential IPO.^[12][13] In early 2023, Unacademy announced it would replace cash appraisals with performance-based stock options for current employees as part of its cost-saving efforts.^[12][13] The company has also reduced its monthly cash burn significantly.^[13] These moves reflect a broader trend in the startup ecosystem where companies are prioritizing financial sustainability over rapid growth. The reduced ESOP exercise window is a direct consequence of these financial realities and the company's efforts to navigate a difficult market. For former employees, it means a tough choice: invest money now with uncertain returns or lose out on their earned stock options. The deadline of January 19, 2026, looms for those affected, forcing a quick decision on a potentially life-changing financial asset.

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