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ARTICLE · 25 SEPTEMBER 2023

How To Solve Employee Equity Issues During A Down Round

Torys
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Decreased valuations cause unpredictability around cash cycles and shortening runways.

CanadaEmployment and HR
Torys LLP
Torys LLP
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Decreased valuations cause unpredictability around cash cycles and shortening runways. But beyond the financial considerations, a down round also compels founders to face tough questions impacting the many employees who have gone above and beyond to support the company's growth. First, stock options have decreased. Second, you may need to let some of your people go, which raises other issues for the company's equity. In this article we walk you through best practices to navigate these challenges.

What happens to employee stock options in a down round?

If the valuation of your startup declines, option grants and other equity compensation packages that you offer can face significant risk. The decrease in value of the stock options impacts the compensation of your employees.

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