March 25, 2021
Pre-IPO Equity Incentive Practices
– Liz Dunshee
This memo from Compensation Advisory Partners looks at a sample of 20 high-profile tech IPOs from recent years to understand equity practices leading up to going public. Here are a few key findings:
1. Options are still the favorite form of equity awards – but there’s been a shift to granting more RSUs, typically with double-trigger vesting based on both years of service and going public
2. Companies have been successful in getting private investor approval for equity grant pools. At median, pre-IPO equity overhang was 21.5%. At the time of the IPO, 95% of companies asked for additional equity authorization, leading to overhang of 27.7% – plus evergreen provisions and liberal share recycling.
3. Many companies implemented ESPPs in conjunction with their IPOs – which has been non-controversial from the standpoint of proxy advisors.
4. Some founders have received significant performance-based equity grants at IPO