Large privately held startups valued at $1 billion or more (“unicorns”) are dealing with employees’ conflicts of expectations due to the illiquidity of the shares of stock acquired upon exercise of their options.

Until about eight years ago, many talented workers chose to work for a startup company for a lower cash salary combined with a substantial stock option grant, and the dream of cashing out for a large sum of money after an initial public offering (“IPO”) of the startup’s stock.

Today, unicorns remain private for extended periods of time in part because they are often no longer dependent on an IPO or a trade sale to raise sufficient capital. As a result, they are delaying liquidity events for their founders, employees, and investors, thereby causing their employee stock options to lose some of their allure as a hiring and retention device.

This article examines a contemporary puzzle in Silicon Valley – is there a shift in unicorn employees expectations that results in labor contracting renegotiations? It explores the challenges faced by unicorn firms as repeat players in competitive technology markets. It offers the following possible solutions. First, new equity-based compensation contracts, and critiques them. Second, alternatives to the traditional liquidity mechanisms, and critiques them.

It concludes with proposals to remove legal barriers to private ordering, and new mandatory disclosure requirements.


unicorn firms, entrepreneurship, corporate law, employees, contract, IPO, golden handcuffs, stock option, equity, technology, lock-in, illiquidity

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Columbia Business Law Review

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2019 Columbia Business Law Review 107

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COinS Anat Alon-Beck Faculty Bio