What happens after these markdowns to the employees hired in the last 12 months? Presumably their options are now underwater and they have little reason to stay anymore. Will these markdowns lead to a sizable exodus from the companies?
There are more reasons to stay at a company than perceived value of options. Options are only part of overall compensation and, I don't know, maybe you can actually like your job.
Some companies decide to reprice the options and/or grant more options to help with retention. Also companies with high valuation and closer to an exit give out RSUs (so strike price 0).
And also - the price that employees pay for stock options is the common share price which is appreciably different (2x - 20x) from the preferred price. The preferred share price is what the investors paid, and it is that higher valuation the ms is writing down. There's a much longer drop before employee share are underwater in a pre-public company.
Yes and no. Sure on purely the face of it there is a much bigger gap before they're underwater, but that's because the preferred shares carry some nice benefits: preference, multipliers and possibly some control of the company. Marking down the value of the preferred shares implies that those benefits aren't worth what they paid a premium for, which means that common shares are also less likely to be worth anything, since they generally get paid out only if the preferred shares are converted or if there is money left over after preferred shares get paid off.
There is no tax implication right away after 1y. It's only when they get converted to actual shares (which you can sell) you are taxed. In an IPO case that might be a few months after the IPO (still before the usual 6m IPO lockdown). I don't know how it works if RSUs are allowed to be vested for selling on secondary market.
