Why Mature Private Companies Shift From Stock Options to RSUs

As private companies mature, so must their equity strategies. While stock options are often a great choice for early-stage or even mid-stage companies, more mature companies sometimes shift their equity strategy to align more closely with that of public companies, including granting RSUs in addition to, or instead of, stock options.

Unicorns and RSU Grants

In the world of startups, a small percentage of companies rise to the status of “unicorn,” a feat only achieved once a privately held company eclipses the billion-dollar valuation mark. Achieving this status means a startup has not only survived but thrived, often winning the battle for talent, disrupting industries and rewriting rules.

However, as unicorns mature, they must navigate the complexities that come with growth and face some of the same challenges that cause public companies to choose RSUs over stock options, such as less potential for stock price growth.

Why Companies Shift to RSUs

In early-stage startups, stock options are often the go-to instrument. Lower valuations make stock options a low-cost way to incentivize employees and entice talent through the potential growth they may experience.

For example, assume a company has a fair market value (FMV) of $0.25 per share when valued at $5 million. When this company reaches unicorn status, i.e., a valuation of $1 billion, the FMV would surge to $50 (for simplification purposes, this example makes the very improbable assumption of no share dilution).

This is a 19,900% increase in value that early-stage employees get to share in. As illustrated in the blog “Why Start-ups Grant Stock Options,” this would be quite a windfall for the employees who received stock options at $0.25 per share.

However, once that $1 billion valuation has been reached, new employees hoping to experience a similar level of growth would need to see the company reach a $199 billion valuation, referred to as a “hectocorn,” an accomplishment that is considerably harder to achieve. According to CB Insights, there are over 1,400 unicorns, while Business Insider estimates that only seven startups have achieved hectocorn status.

The improbability of achieving this growth, the challenge of sustaining a high stock value, and the high financial cost to employees of exercising options granted at a high price are factors that drive companies at this stage to turn to RSUs.

RSUs Have Inherent Value at Grant

Unlike stock options, which require stock price appreciation to be valuable, RSUs, which are full-value awards, are valuable from the moment they are granted. Their immediate, tangible value makes RSUs a more predictable and stable form of equity compensation, which is especially enticing for senior-level hires, tech talent, and other employees looking for more certainty in their compensation packages when seeking new opportunities. By granting RSUs, companies can be assured that employees will realize value from their equity awards, even if the stock price declines.

Double-Trigger Vesting: RSUs at Private vs. Public Companies

Although private companies that grant RSUs are often doing so because they have reached a valuation and level of maturity where it makes sense for their compensation practices to align with those of public companies, there are still some differences in how RSUs work at private companies. One significant difference is that vesting in RSUs granted by private companies is often contingent on two conditions:

• Fulfillment of a specified period of service
• Achievement of a successful initial public offering (IPO) or acquisition by another company

This is referred to as “double-trigger” vesting because there are two conditions, or “triggers,” that must be met for the awards to vest. “Double-trigger” is one of those phrases that sometimes means different things in different contexts. In this context, one trigger is the service condition, and the other is the IPO or change-in-control (CIC) event.

The two events do not have to happen in any specific order. If the award holder fulfills the service condition before the IPO or CIC happens, the RSU won’t vest until the IPO/CIC occurs. Conversely, if the IPO/CIC occurs before the award holder has fulfilled the service condition, the RSU won’t vest until the service condition has been met.

In a survey of private companies administered by the NASPP, the Certified Equity Professional Institute, and Pave in January 2026, just over half of respondents that grant RSUs make vesting in the awards contingent on both continued service and an IPO/CIC. Double-trigger vesting is considerably less common for stock option grants: Most respondents condition vesting in stock options only on continued service, and only 13% condition vesting in stock options on both service and an IPO/CIC.

Why Private Companies Choose Double-Trigger RSU Vesting

One challenge private companies face when granting RSUs is facilitating the tax payments due upon vesting. Because there isn’t a market for the company’s stock, these tax payments could require a considerable cash outlay for either the award holders or the company. Double-trigger vesting mitigates this challenge by delaying vesting until the company’s stock is publicly traded. In fact, at some companies, the awards don’t vest until the end of the post-IPO lock-up period.

Drawbacks of Double-Trigger RSU Vesting

However, double-trigger vesting has its own challenges. To effectively delay taxation, RSU awards must be subject to forfeiture if an IPO/CIC doesn’t happen within a specified period (typically 10 years from grant). If this period elapses without an IPO/CIC, the company likely will not be able to do anything to prevent forfeiture of the awards. Doing so would violate Section 409A, triggering very onerous tax penalties for the award holders.

Another drawback is that when an IPO or CIC occurs, a large number of RSUs may vest all at once. Some companies have had to set aside a portion of the capital raised in the IPO to help cover the tax payments employees owed on their RSUs. In some cases, the amounts involved are material enough to require disclosure in the public filings related to the IPO.

Monthly and Quarterly Vesting in RSUs

In public companies, service-based RSUs predominantly vest in annual increments. Over 60% of respondents to the NASPP/Deloitte Tax 2024 Equity Incentives Design Survey utilize annual vesting for new-hire and ongoing grants of full-value awards.

In private companies, however, service-based vesting intervals are typically monthly or quarterly, used by 20% and 46% of respondents to the NASPP/CEPI/Pave survey, respectively. Only 16% of respondents to the survey utilize annual vesting.

This is an area where private companies may be influencing behavior among public companies, especially in the tech and life sciences sectors. The percentage of public companies in these sectors that utilize quarterly vesting for RSUs increased from just over 20% in the NASPP/Deloitte Tax 2021 survey to more than 40% in the 2024 survey.

Key Takeaways on RSUs for Mature Private Companies

The journey from startup to unicorn to public company is both exhilarating and fraught with challenges. At each stage of this journey, the strategies employed, from innovation to recruitment, need meticulous evaluation. Among the various factors that set mature private companies apart is their ability to adapt to changing landscapes, especially in the realm of compensation and employee incentives. 

RSUs, with their inherent value, adaptability and minimized risk, position them as a compelling alternative to traditional stock options for mature companies with lofty valuations. By adopting RSUs, large private companies not only showcase their commitment to sharing their success with their workforce, but they also strategically position themselves to compete for top talent.