Many startups are overvalued. But because they are also well stocked with cash, they haven’t had to raise new funding at a lower or flat valuation — yet. However, new data from Carta found that cracks are starting to show.
Startup equity infrastructure platform Carta found that a record number of startup employee stock grants — which are stock option packages offered to individual employees — were repriced in Q3. The total of 18,629 re-pricings was up 260% from the 7,165 that were repriced in Q2. The only prior quarter that comes close is Q2 2020, with 12,570, when the pandemic started to unfold.
What these re-priced share packages tell us is that startups are starting to mark down their internal valuations despite not raising a new round. How? Because employee stock grants are tied to a company’s 409A valuation — a third-party appraisal of a company’s fair market value.
A company re-prices its stock grants because it now calculates its valuation to be lower and wants to change the packages to accurately reflect that, Peter Walker, the head of insights at Carta, told TechCrunch.
“Say you joined a company in 2021 and received stock options,” Walker said. “Now, in 2022, because of everything going with the economic climate, it is somewhat likely that the value of the stock that you got may be lower than when you joined. We would call those underwater shares.”
He said that re-pricing them also gives more potential upside to shareholders if the company does well coming out of the current period of uncertainty. He added that the re-priced grants were concentrated among about 155 companies, mainly Series C stage and later, and did not include all types of employee stock options — RSUs don’t change with a new 409A valuation.
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San Francisco | October 27-29, 2025 REGISTER NOWWhile this data comes from a narrow pool, it still seems significant that more than 150 late-stage companies’ 409A valuations fell in Q3 alone. While we knew this was going to happen, we haven’t really seen the first domino fall in terms of announcements yet.
The 260% quarter-on-quarter increase also seemed significant because we didn’t see other indicators of volatility like layoffs — at startups specifically — jump in the same manner in Q3, though things are looking grim in November. Walker said this largely has to do with how long companies can hold out from changing their valuation, and Q3 seemed to be the turning point for many.
“I think it probably comes down to just dynamics within these companies and their fundraising pathways,” he said. “All of these things function in conjunction with each other, layoffs especially. Perhaps companies were trying to not value themselves or get a new 409A but now need to for a bridge round or different financing options.”
Carta data also found that the percentage of employees who exercise their stock options when they leave the company, either voluntarily or involuntarily, has been steadily declining this year as well.
Walker said this is likely due to the fact that to exercise the options, individuals have to put some money upfront or take out a loan, which would be unattractive due to rising interest rates.
This percentage will likely continue to decrease because Walker predicts that layoffs and valuations will worsen into next year. He hopes that as things get more uncertain, more companies will consider educating employees and giving them more time to exercise their options, because this dynamic is going to be here for a while. Some startups have already started to do this.
“If I’m being honest, the peak we saw in Q3, that’s not going to be the highest,” he said of the number of employee stock options that were re-priced. “This will happen more moving forward simply for the function of, a lot of times, companies will put off re-pricing until they actually have to.”