Pre-IPO ESOP Refreshes: Sizing, Vesting and Lock-up Implications

The pre-IPO ESOP refresh — creating a new share pool for post-listing employee grants — is a critical compensation planning exercise. Typical sizing: 5-10% of the post-IPO fully diluted share capital, with the upper end for companies in competitive talent markets (technology, biotech) and the lower end for companies with lower equity compensation norms. Vesting terms for new grants typically shift from the standard startup 4-year vesting with 1-year cliff to a more public-company-appropriate model: 3-4 year annual vesting, performance-vested restricted share units (RSUs) for senior executives, and retention grants for key technical staff with cliff vesting tied to specific milestones. The lock-up overlay: employees holding pre-IPO shares are typically subject to the same 6-month lock-up as other pre-IPO shareholders, but companies may negotiate a partial early release for a limited number of shares to allow employees to cover tax obligations arising from option exercise at IPO. The ESOP refresh must be approved by shareholders as part of the IPO resolutions, and the prospectus must disclose the maximum dilution from the new ESOP pool.