Mumbai — When former employees of Unacademy began receiving emails earlier this month, the message was brief but jarring. The edtech company had revised its employee stock option plan (ESOP): those who leave the firm would no longer have up to ten years to exercise their vested options. Instead, they would have just 30 days.
For many ex-employees, the shift felt abrupt and punitive. Exercising ESOPs requires paying the exercise price upfront, along with immediate tax liabilities under Indian law — even if the shares cannot be sold or monetised. Several former staff members said the compressed timeline effectively forced them to choose between a significant financial outlay or walking away from options earned over years of work.
The reaction was swift. Discontent spilled onto social media, where former employees questioned the fairness of the policy and warned that it could leave them paying taxes on paper wealth that may never materialise.
The Tax Trap Behind Employee Equity
At the heart of the anxiety lies India’s tax treatment of stock options. When an employee exercises ESOPs, the difference between the fair market value and the exercise price is taxed as income, regardless of whether the shares are later sold at a profit — or sold at all.
Unacademy acknowledged this in its communication, clarifying that exercising options would trigger immediate tax obligations. For former employees facing a 30-day deadline, the burden can be substantial, particularly in the absence of a clear exit or liquidity event.
This dynamic has reignited a long-running debate in India’s startup ecosystem: whether ESOPs truly reward employees, or merely shift financial risk onto them during downturns.
Deal Talks and the Shadow of Valuation
The timing of the ESOP change has added to the unease. Unacademy is currently in discussions with UpGrad for a possible acquisition, according to public statements by the company. The talks are said to be taking place at a valuation of roughly ₹2,650 crore (about $300 million) — far below Unacademy’s peak valuation of $3.4 billion in 2021.
In such scenarios, investor protections known as “liquidation preference” come into play, allowing investors to recover their capital before common shareholders — including employees — receive anything. Some industry observers say this could render employee-held shares effectively worthless in a sale.
From Unacademy’s perspective, allowing former employees to exercise their options now converts them into common equity holders before any deal concludes, preserving at least a chance of upside if value remains after investor claims.
A Public Dispute and a Founder’s Defense
The policy change prompted a rare public exchange between a former employee and Unacademy’s founder, Gaurav Munjal, on social media. One former staff member accused the company of forcing ex-employees to “cough up a huge amount” in taxes or forfeit their vested options, calling the move damaging to the startup ecosystem’s credibility.
Munjal pushed back, arguing that the core issue was not the shortened exercise period but liquidation preference. He said the intent was to help employees salvage whatever value might remain, adding that even his own ESOPs were affected by the revised structure. In subsequent messages, he apologised for the distress caused but rejected personal allegations about governance and spending, saying all expenses had been disclosed to the board.
The exchange underscored a deeper tension playing out across India’s startup sector. During years of rapid growth and abundant capital, ESOPs were promoted as a key wealth-building tool. As valuations reset and consolidation accelerates, those promises are being reassessed — often painfully.
Unacademy has raised more than $800 million from investors including SoftBank, Temasek and General Atlantic. Earlier this year, Munjal and co-founder Roman Saini stepped back from daily operations, with Sumit Jain taking over as chief executive.
For current and former employees, the ESOP episode has become a symbol of a broader reckoning: what employee ownership means when startups mature, markets cool, and the distance between notional value and real money becomes impossible to ignore.
