In private company compensation, RSUs have an individual price which is based on the overall valuation of the company. The company determines this value with the help of some external accountants and is supposed to represent a "fair market value". When it comes time to issue employees stock, this price is used to determine how many shares are issued. For example, if the company wants to issue a new hire $100,000 worth of stock and the stock price is $100/share, they'll give the new employee 1,000 shares.

Recall that the share price is determined based on the Fair Market Value. Unlike an actual equity market price, the FMV is not frequently updated. This can cause issues where the FMV is out of sync with the actual value of the company. If it's too high, it causes the value of equity granted to employees to be too low. In the above example, if the stock is 40% more than it should be, the employee expects $100,000 worth of stock but is actually only receiving $60,000. By reducing the FMV, employees get a better deal.

Would you rather get paid your salary in rising equity or in flat equity? Lower valuation allows for more realistic growth.

Given most pandemic growth stocks (ex: zoom, peloton) are down so much nobody really believes that instacart is worth what they raised at the height of the pandemic? Helps with new hires, but existing hires will need large refreshers