July 14, 2025
IPOs: Dealing with Equity Awards During “IPO Purgatory”
This recent Cooley blog offers some advice to managing what it calls “pre-IPO purgatory” – the often lengthy period it takes for an IPO candidate to move forward with its offering. The blog’s advice is based on discussions with a tech company CLO who has guided a company through this period. This excerpt addresses issues associated with equity awards:
Managing equity rewards and retention. In these uncertain times, companies are getting creative with equity rewards and retention strategies. Providing limited liquidity for “must be present” restricted stock units (RSUs) is one tool in the box, but this must be applied carefully to balance retention and incentive value alongside cash availability and long-term context. This CLO, for instance, saw a robust secondary market for option holders but faced challenges with RSU holders who couldn’t sell their shares.
Dilution and equity awards. Companies often move from options to RSUs to curb dilution, as RSU awards are full-value awards. However, RSUs come with their own set of challenges, such as the inability to participate in secondary markets. Some companies are now providing both options and RSUs or reverting to granting options to address these issues. Additional complexity is present where 409A valuations are volatile, so this is again an area where you should proceed carefully. Balancing talent retention with dilution pressure is a delicate act.
The blog discusses some alternatives for dealing with RSUs and also stresses the importance of settlement timing and tax withholding.
– Meredith Ervine
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