The Advisors' Blog

The IPO market has been incredibly slow this year – but it will come back, eventually. And when it does, the high-volume 2021 market will be a good reference point for planning equity grants that are made just prior to a company’s public debut. This Pay Governance memo provides guidance on practices & considerations. Here’s an excerpt of a few key findings:

Prevalence & Timing of IPO Grants

– Out of 368 companies that went public in 2021, 62% granted equity awards around the timing of their IPO.

– Among the companies that granted IPO awards, 46% made a grant at IPO, while 33% made a grant within three months of their IPO and 21% did both (granted awards at IPO and within three months of their IPO).

– In order to provide two perspectives on the size of IPO equity award pools, we analyzed the award pool as a percentage of Fully Diluted Shares Outstanding (FDSO) and as a percentage of the Total Share Reserve.

Type of LTI IPO Grants

– The most common type of equity award granted by companies in connection with an IPO is a stock option.

– At-IPO award types varied considerably by industry, with Pharma, Biotech, and Life Sciences companies overwhelmingly granting stock options and Financial Services companies mainly granting full value shares (e.g., restricted stock/units).

– Other industry sectors granted a mix of stock options and full value shares.

– When reviewing the equity mix of vehicles At-IPO with and without Pharma, Biotech, and Life Science companies, there is a significant decline in the use of stock options.

– For example, the prevalence of granting At-IPO awards are 46% stock options, 20% full value shares, and 35% for both stock options and full value shares when all industries are included.

– However, when Pharma, Biotech, and Life Science companies are excluded, the prevalence of only granting stock options drops to 25% and granting a mix of stock options and full value awards increases to 46%.

– In our experience, while there has been some recent movement on this, the traditional approach among Pharma, Biotech, and Life Science companies is to maintain an all-stock-option grant strategy up until there is progress toward commercialization (e.g., after clinical progress/FDA success and commercial prep has begun) when stock price volatility and growth trajectory has somewhat stabilized.

– Liz Dunshee