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Taking stock of ‘unicorn’ companies: A good idea or a Trojan horse?

Case Western Reserve University law professor Anat Alon-Beck makes a case for regulatory reform for tech startups worth more than $1 billion

Until just a few years ago, many talented workers chose to hustle for a promising technology startup company, often for lower pay, long hours and a challenging work-life balance. That was the payoff for substantial stock options and the dream of cashing out for lots of money after an initial public offering (IPO).

That model is shifting, said Anat Alon-Beck, an assistant professor at the Case Western Reserve University School of Law, thanks in part to privately held tech startups valued at $1 billion or more, commonly referred to as “unicorns.”

Alon-Beck recently published an article on the topic that’s been republished in academic journals nationwide.

Unicorn companies, she wrote, have created a big problem for the traditional startup model, because their abundance of cash causes them to delay their IPOs.

Professor Anat Alon-Beck
Anat Alon-Beck, assistant professor of law at Case Western Reserve University School of Law

“And, as a result, they are delaying payouts for their founders, employees and investors,” said Alon-Beck. “It’s causing employee stock options to lose some of their allure as a hiring and retention device.”

In other words, employees’ investment is worth less when the company goes public—a lot less.

Take former unicorn Uber, for example. Before the ridesharing giant went public, it was initially valued at around $75 billion. At the IPO, the company raised a disappointing $8.1 billion.

Alon-Beck fears this might become the norm. There are currently dozens of companies headed to the market saddled with debt that haven’t had enough time to build their brand.

What are the implications? For starters, unicorns may be less likely to go public and/or talented employees won’t want to work for innovative and progressive companies, Alon-Beck said.

“Unicorn firms must find ways to continue to offer (employees) equity—and a promise of equity—and facilitate liquidity opportunities,” she said.

She offered up a few solutions:

  • New, equity-based compensation contracts for different types of employees are needed; they could include stock grants, options for income-tax deferrals and back-end-loaded stock options to keep employees from leaving.
  • “Additionally, we need alternatives to the traditional liquidity mechanisms,” Alon-Beck said. Options include: direct listings (matching public buyers with private sellers) streaming music service Spotify did; using electronic secondary markets, like NASDAQ Private Market; and a secondary sale to a single buyer—that would relieve pressure for liquidity events.
  • Alon-Beck said there need to be reforms to the current regulatory and legislative models to remove legal barriers, among them federal securities and tax laws.

“Liquidity opportunities and information will encourage employees to continue to exchange their creativity and hard work for the sweat equity needed for the game-changing innovations necessary for American competitiveness in the global marketplace,” she said.

For more information, contact Colin McEwen at

This article was originally published Sept. 24, 2019.