Yale Law School professor exposes how unicorns hide billions in compensation costs before going public

That unicorn you’re buying into might be carrying a few billion dollars in hidden baggage. A new working paper from Yale Law School professor Sven Riethmueller reveals that pre-IPO companies have been systematically gaming US accounting rules to defer massive stock-based compensation costs, making their financials look far healthier than they actually are right up until the moment retail investors start buying shares. The paper, titled “Beetles with Ballooning Burdens: Pushing out Pre-IPO Compensation Costs until the RSU Reckoning,” examines 91 US unicorns that went public between 2014 and 2024. The findings paint a picture of a compensation system designed to flatter the numbers when it matters most, and quietly dump the costs on public shareholders when it matters least to insiders. The $358 million magic trick Riethmueller’s analysis found that 60 of the 91 unicorns studied recognized an average of $358 million in deferred stock-based compensation expenses, adjusted for inflation, at the time of their IPOs. Eight firms went even further, each deferring more than $1 billion in pre-IPO compensation costs. The mechanism is straightforward: companies grant restricted stock units to ...