Inside Unacademy’s ESOP Pause: Employee Backlash, Valuation Cuts, and the Shadow of an Acquisition

In India’s startup ecosystem, employee stock options are more than just compensation—they are often a promise of shared success, a long-term bet that hard work today will pay off tomorrow. Over the past few weeks, that promise came under intense scrutiny at Unacademy, as the edtech major found itself facing a wave of concern and criticism from former employees over proposed changes to its ESOP framework.

Late last month, Unacademy quietly decided to hit pause.

After strong backlash from ex-employees, the company has put on hold amendments to its 2018 Employee Stock Option Scheme (ESOS 2018), a move that brings temporary relief but leaves larger questions hanging over the future of employee equity at the firm.

Unacademy ESOP: A pause after mounting pressure

In an email sent to ESOP holders on December 19, Unacademy informed stakeholders that the proposed changes to ESOS 2018 were being “put in abeyance” until further notice. The company said it would complete all necessary corporate approvals to formalise the pause and revisit the issue at a later stage, with an emphasis on balancing the interests of employees and other stakeholders.

The decision came after days of growing unease among former staff, many of whom felt the proposed amendments placed disproportionate financial risk on individuals—especially at a time when Unacademy itself is navigating valuation resets and strategic uncertainty.

The proposal that triggered the backlash

At the heart of the controversy was Unacademy’s request to former employees to exercise their vested ESOPs within a compressed time window, and at a sharply reduced valuation.

According to earlier reports, the company had pegged this exercise at a valuation of around ₹2,650 crore—a steep fall from Unacademy’s peak valuation of over $3 billion during the boom years of venture capital funding. For many former employees, this raised a troubling dilemma: exercise now and face immediate tax liabilities, or walk away and potentially lose any future upside.

The problem was not just the lower valuation. Exercising ESOPs in India typically triggers tax obligations even if the shares are illiquid. With no clear timeline on when—or whether—those shares could be sold, former employees felt they were being asked to shoulder risk without visibility on rewards.

Several described the process as financially stressful, especially when combined with broader uncertainty around the company’s future.

Unacademy’s rationale: protecting equity in a deal scenario

Unacademy co-founder and CEO Gaurav Munjal publicly explained that the intent behind the proposal was not to disadvantage employees. Instead, he said, the move was aimed at protecting former staff in the event of an all-stock merger.

In such transactions, unexercised ESOPs can lapse and become worthless due to liquidation preference structures that typically prioritise investors over common shareholders. By encouraging employees to convert options into shares earlier, the company argued it was safeguarding their equity rights in any future deal.

Munjal also acknowledged that the process had caused anxiety and confusion, conceding that the execution had not landed as intended.

Why employees pushed back

For former employees, the concern was less about intent and more about impact.

The short exercise window, combined with reduced valuation and lack of clarity on liquidity, effectively forced individuals into a lose-lose choice. Either they paid tax upfront on shares they could not sell, or they gave up their stake entirely—despite having earned those options through years of work.

Many felt the risk had shifted entirely onto employees at a time when the company itself was restructuring and exploring strategic alternatives.

The shadow of acquisition talks

The ESOP episode has unfolded against the backdrop of reported acquisition discussions between Unacademy and upGrad. The potential deal is said to value Unacademy at around $300–400 million (approximately ₹2,800–3,500 crore), broadly in line with the valuation implied in the ESOP exercise proposal.

Under the reported structure, Unacademy’s language-learning app AirLearn could be spun off as a separate entity, while upGrad would acquire Unacademy’s core test-prep and offline education businesses. Neither company has officially confirmed the transaction, though Unacademy has acknowledged it is in merger and acquisition discussions.

UpGrad is co-founded by Ronnie Screwvala, a veteran entrepreneur and investor who has been vocal about consolidation in India’s edtech sector.

What the pause really means

By keeping the ESOP amendments on hold, Unacademy has effectively reverted to the original ESOS 2018 framework—for now. For former employees, this offers immediate relief from the pressure of making high-stakes financial decisions under tight deadlines.

But the larger uncertainty remains.

If acquisition talks progress, especially if structured as an all-stock deal, the treatment of ESOPs will once again come into focus. How employee equity is handled could become a key test of trust—not just for Unacademy, but for the wider startup ecosystem grappling with the realities of down rounds, consolidation, and a more disciplined capital environment.

For many founders and employees watching closely, the episode is a reminder that in today’s reset phase for startups, transparency and timing matter as much as intent. In Unacademy’s case, the pause may have defused immediate tensions—but the conversation around fair and sustainable ESOP practices is far from over.