David vs Goliath: 3 Ways Startups Are Beating Public Companies

Startups have begun closing the gap with public companies by rethinking their equity compensation strategies.

In a tight talent market, high-growth startups are coming up with increasingly creative ways to attract and retain their team. This includes offering periodic liquidity programs, longer stock option exercise windows, and investing HEAVILY in equity education.

Recent data has shown that implementing these strategies has measurably improved employee retention, enhanced perceived equity value, and increased the ability of private companies to attract top talent, despite lacking the immediate liquidity of their public competitors.

Below, we dive into those three strategies and the benchmarks, statistics, and case examples that illustrate their impact.

1. Offering Liquidity Programs (Tender Offers) for Private Stock

One of the biggest drawbacks of private company equity has always been illiquidity. Employees often have to wait for an IPO or acquisition to turn shares into cash.

To stay competitive with public companies (where employees can sell stock relatively easily), private firms are increasingly organizing liquidity programs like tender offers or share buybacks that let employees sell a portion of their shares. These programs have surged recently as startups seek to reward and retain talent during longer pre-IPO timelines.

Tender offers are on the rise

In Q3 2024, the number of private startup tender offers jumped 44% year-over-year, with 26 deals that quarter, the highest quarterly total in over two years.

In fact, 2024 saw private tender offer activity overtake the traditional IPO market: total proceeds raised via secondary tender offers exceeded the volume raised through VC-backed IPOs. This trend signals that more companies are providing liquidity to employees and early investors while staying private longer.

Employees value liquidity

A relatively recent survey found 62% of private company employees consider the prospect of a future liquidity event or IPO “very or somewhat important.” In other words, a clear path to cash out some equity is a big deal for talent considering a startup offer.

Company leadership recognizes this as well, 86% of HR leaders at private firms say it’s important to plan for a liquidity event (such as a tender offer) in the next 12–24 months.

By proactively enabling stock sales, startups can alleviate employees’ financial anxieties and make their equity packages more enticing.

Case Studies—SpaceX and Databricks: 

Some of the most prominent unicorns have run sizable tender offers to give employees liquidity. For instance, Databricks, a highly valued private tech company facilitated a $1 billion tender offer in late 2024, allowing employees and early investors to sell shares at a valuation of about $55 billion.

SpaceX, still privately held after two decades, regularly offers employees chances to sell stock; a December 2024 SpaceX tender valued the rocket company at over $250 billion and let existing shareholders sell at $135 per share. These examples show how liquidity programs can reward long-term team members and give them confidence that their stock options have real value before an eventual IPO.

By implementing managed liquidity programs, private companies are able to deliver a similar “payday” that public company employees enjoy, without actually being publicly traded.

Offering liquidity is quickly becoming a standard part of the private company compensation playbook for those who aim to hire and keep the best talent.

To learn how to manage a tender offer at your company, check out the NASPP webinar “Private Companies: Understanding and Managing Tender Offers.” (Don’t have time for the full webinar? Watch the 6-minute summary.)

2. Extending Stock Option Post-Termination Exercise Windows

Another strategy gaining momentum is extending the post-termination exercise window ( PTE) for stock options (something we are seeing frequently among our clients at equity admin co.) Traditionally, when an employee with stock options leaves a company, they have only 90 days to exercise their vested options or else they lose them.

This 90-day rule has tripped up countless employees who couldn’t afford the cost or tax bill of exercising in that short timeframe, effectively forcing them to forfeit equity they worked hard to earn. To make equity more valuable and fair, many private companies are rethinking this 90 day window.

The problem with 90 days

The vast majority of startups still use the default 90-day exercise window, in one sample of venture-backed companies, 82% had a median post-termination exercise period of roughly three months. This rigid cutoff leads to a huge loss of potential value for employees.

In 2022 alone, nearly 50,000 workers at US unicorn startups let their stock options expire unexercised, walking away from an estimated $1.8 billion in combined equity value.

On average, each of those employees left about $47,000 on the table in the form of vested options they couldn’t capitalize. Such outcomes undermine the perceived value of startup equity and why would anyone join a private company for stock options if there’s a good chance you might never own the shares they represent?

Longer windows as a solution

To address this, a growing number of companies have introduced extended exercise windows of several years. High-profile examples include Pinterest, which, prior to their IPO, gave former employees up to seven years to exercise their vested options, rather than just 90 days.

And Carta, the cap table management juggernaut, implemented a policy where ex-employees get a window equal to their length of service (e.g. three years at Carta = three years to exercise options). Many other startups have followed suit with extensions ranging from 6 months to 10 years. This flexibility allows employees to leave on good terms without the panic of finding tens or hundreds of thousands of dollars within three months to save their earned equity.

Becoming a competitive norm

During the recent economic slowdown, extended exercise periods became more common with about 20% of stock options issued in 2023 coming with post-termination windows longer than 90 days, a historically high level.

Offering a longer exercise window is seen as a pro-employee move that signals that their company cares about their financial well-being and is willing to break the 90-day tradition for their benefit.

For recruiting and retention, this can be a differentiator: experienced candidates are savvy to the 90-day problem and appreciate employers who remove those “golden handcuffs” that might otherwise lock them in a job or force a painful choice.

In practical terms, extended windows mean employees can wait for a more optimal time (for personal finances or for the company’s growth) to exercise their options, increasing the odds that they’ll share in the company’s success.

Of course, companies must weigh some trade-offs as longer windows can trigger tax complexities (after 90 days, incentive stock options typically convert to nonqualified stock options with less favorable tax treatment). But many venture-backed firms decide the boost in goodwill and talent attraction outweighs the tax administration burden. By granting alumni employees years, not months, to exercise their stock, private companies make their equity grants significantly more valuable in the eyes of recruits and current staff.

3. Building Equity Education and Transparency Programs

Even the most generous equity package won’t have its intended impact if employees don’t understand it. As my friend Jason Mann has always said:

If you give someone a gold brick, but they don’t know what gold is, all they have is a fancy paperweight.

That’s why leading private companies are focusing on equity education and transparency to ensure that employees know what they own (or could own), how it works, and how to realize its value.

Greater transparency around equity compensation and regular educational initiatives can close the knowledge gap that often exists, especially for employees without prior experience in startups or stock plans.

The awareness gap

Carta studies have consistently shown that many employees lack basic knowledge about their stock compensation with nearly half of employees (49%) not knowing how to determine the right time to exercise or sell their stock options, and 63% don’t know how to reduce the tax liabilities associated with their equity.

In that same study 13% of startup employees admitted they avoided exercising their options because they were afraid of making a mistake or even believed they already owned the shares (a sign of confusion about what stock options actually are).

It’s no surprise, then, that over two-thirds of employees want more help and are even demanding it, with 69% saying it’s important to them that their company educate them on how their equity works, but yet only 37% felt their employer’s equity education efforts were adequate.

Unfortunately, more than half of companies offer little to no formal equity education today, leaving a lot of room for improvement.

Why education pays off

Lack of understanding can lead employees to undervalue or mishandle their equity. For example, inexperienced team members often fail to exercise in-the-money options because they don’t appreciate the upside or feel too uncertain.

More than half of entry-level employees in one analysis never exercised any of their vested, in-the-money stock options, a much higher non-exercise rate than seen in senior employees.

By contrast, employees with financial savvy are more likely to capitalize on their equity; finance professionals (who presumably have higher financial literacy) were found to be the most likely group to exercise their stock options, viewing equity as an important wealth-building tool. The implication is clear: knowledge empowers employees to realize the value of equity, which in turn makes them more appreciative of that part of their compensation.

In fact, in a 2024 workplace survey from Morgan Stanley, 80% of employees agreed that equity compensation motivates them to stay engaged and aligned with the company’s success. When people truly grasp how their stock grants translate to personal financial gain in a future exit, they’re more committed to the mission.

Companies that prioritize equity education and openness are rewarded with a more engaged workforce. HR leaders overwhelmingly cite equity compensation as one of the most effective tools for driving employee engagement and retention (95% of HR professionals in one survey said so). However, that holds true only if employees recognize the value of their equity which is why closing the education gap is critical.

As Kate Winget of Morgan Stanley at Work has stated, equity plan engagement (through measures like better education, leadership support, and offering liquidity opportunities) can have a direct impact on employee satisfaction and goodwill.