TheRealReal, Inc.REAL
TheRealReal, Inc. Stock Compensation Disclosure
Share-based Compensation Plans
2019 Equity Incentive Plan
In connection with the Company’s initial public offering, the Company adopted the 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan allows the Company to grant stock options, stock appreciation rights, restricted stock, restricted stock units and performance awards to participants. Subject to the terms and conditions of the 2019 Plan, the initial number of shares authorized for grants under the 2019 Plan is 8,000,000. These available shares increase annually by an amount equal to the lesser of 8,000,000 shares, 5% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or the number of shares determined by the Company’s board of directors.
The Company’s board of directors approved an increase of shares available for grant under the 2019 Plan by 4,465,083 shares on May 5, 2021, by 4,648,003 shares on February 23, 2022, by 4,954,409 shares on February 13, 2023, by 5,233,525 shares on February 20, 2024, and by 5,562,473 shares on February 12, 2025.
Activity under the Company’s stock option plan is set forth below:
| Number of Options | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Life (years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Balances at December 31, 2024 | 917,370 | 8.44 | 3.5 | $ | 3,445 | ||||||||||||||||||
| Options granted | — | — | |||||||||||||||||||||
| Options exercised | (232,173) | 5.03 | |||||||||||||||||||||
| Options cancelled | (50,633) | 8.12 | |||||||||||||||||||||
| Balances at December 31, 2025 | 634,564 | 9.71 | 2.9 | 4,489 | |||||||||||||||||||
| Options vested and exercisable— December 31, 2025 | 634,564 | 9.71 | 2.9 | 4,489 | |||||||||||||||||||
There were no stock options granted in 2025, 2024 and 2023. The aggregate intrinsic value of options exercised for the years ended December 31, 2025, 2024 and 2023 was $1.6 million, $0.3 million and zero, respectively. The aggregate intrinsic value of options exercised is the difference between the fair value of the underlying common stock on the date of exercise and the exercise price for in-the-money stock options.
In March 2023, the Company granted PSUs under the 2019 Plan subject to the achievement of both market and service conditions to certain employees of the Company. The number of shares of the Company's common stock issued upon settlement will depend on the achievement of approved market conditions and continuous service with the Company. The PSUs are eligible to vest in three tranches over a five-year performance period. The PSUs are measured using the Monte Carlo simulation to obtain the fair value at the date of grant based on the probability that the market conditions will be met. The compensation expense associated with the PSUs is based on the fair value and is recognized over the requisite service period. The compensation expense will be recognized regardless of whether the market condition is ever satisfied, provided the requisite service period is satisfied.
The Company granted PSUs with financial performance targets to certain employees of the Company in 2024 and 2025. The number of shares of the Company's common stock issued upon settlement will depend on the achievement of financial metrics relative to the approved performance targets, and can range from 0% to 200% of the target amount. The PSUs are subject to continuous service with the Company and will vest after approximately three years from the grant date. The PSUs are measured using the fair value at the date of grant. The compensation expense associated with PSUs is recognized based on the estimated number of shares that the Company expects will vest and may be adjusted based on interim estimates of performance against the performance condition.
Inducement Grants
The Company granted stock-based awards outside of the 2019 Plan to certain executives. These awards were granted as inducements material to their commencement of employment and entry into offer letters with the Company, in accordance with Nasdaq Listing Rule 5635(c)(4).
The inducement pool consisted of a total of 5,625,000 shares of the Company's common stock, which included (a) 2,050,000 shares of PSUs that are eligible to vest based on market and service conditions in four tranches over a five-year performance period and (b) 3,575,000 shares of RSUs generally subject to the same terms and conditions as grants that are made under the 2019 Plan. The activity in the inducement pool is included in the summary of RSU activity table below.
RSUs
A summary of RSU activity for the year ended December 31, 2025 is as follows:
| Number of Shares | Restricted Stock Units Weighted- Average Grant Date Fair Value | Aggregate Intrinsic Value (in thousands) | |||||||||||||||
| Unvested December 31, 2024 | 14,305,562 | $ | 3.48 | $ | 156,360 | ||||||||||||
| Granted | 4,361,664 | 6.73 | |||||||||||||||
| Vested | (6,446,275) | 4.13 | |||||||||||||||
| Forfeited | (2,417,521) | 4.24 | |||||||||||||||
| Unvested December 31, 2025 | 9,803,430 | $ | 4.31 | $ | 154,698 | ||||||||||||
Included in the table above for the year ended December 31, 2025 are 457,627 PSUs granted, 198,000 PSUs vested, and 154,718 PSUs forfeited. The weighted average grant date fair value per share of the PSUs granted, vested and forfeited in the year ended December 31, 2025 was $7.78, $2.87 and $7.97, respectively.
The total fair value as of the respective vesting dates of RSUs that vested during the year ended December 31, 2025 was $53.3 million.
Employee Stock Purchase Plan
In connection with the Company’s initial public offering, the Company adopted the Employee Stock Purchase Plan (the “ESPP”). The Employee Stock Purchase Plan permits employees to purchase shares of common stock during six-month offering periods at a purchase price equal to the lesser of (1) 85% of the fair market value of a share of common stock on the first business day of such offering period and (2) 85% of the fair market value of a share of common stock on the last business day of such offering period. The initial number of shares of common stock that could be issued under the employee stock purchase plan was 1,750,000 shares. These available shares increase by an amount equal to the lesser of 1,750,000 shares, 1% of the number of shares of common stock outstanding on the immediately preceding December 31, or the number of shares determined by the Company’s board of directors.
The Company's board of directors approved an increase in the shares available for grant under the ESPP by 893,016 shares on May 5, 2021, by 929,601 shares on February 23, 2022, by 990,882 shares on February 13, 2023, by 1,046,705 shares on February 20, 2024, and by 1,112,424 shares on February 12, 2025.
During the years ended December 31, 2025, 2024 and 2023, employees purchased 428,975, 566,354, and 865,676 shares, respectively, at an average price of $3.85, $2.49 and $1.02, respectively.
As of December 31, 2025, the Company had an immaterial amount of unrecognized stock-based compensation cost related to purchase rights under the employee stock purchase plan.
Stock-based Compensation
In determining the fair value of the stock-based awards, the Company uses the Black-Scholes option-pricing model and assumptions discussed below.
Fair Value of Common Stock— The fair value of the shares of common stock has historically been determined by the Company’s board of directors as there was no public market for the common stock. Subsequent to our IPO, the fair value per share of common stock is the closing price of the Company’s common stock as reported on the applicable grant date.
Expected Term —The expected term represents the period that the Company’s stock options are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term.
Volatility —Because the Company was privately held and did not have an active trading market for its common stock for a sufficient period of time, the expected volatility was estimated based on the average volatility for comparable publicly-traded companies, over a period equal to the expected term of the stock option grants.
Risk-free Rate —The risk-free rate assumption is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.
Dividends —The Company has never paid dividends on its common stock and does not anticipate paying dividends on common stock. Therefore, the Company uses an expected dividend yield of zero.
The following assumptions were used to estimate the fair value of stock options granted in 2019, as there were no stock options granted in 2025, 2024 and 2023:
| Year Ended December 31, 2019 | |||||
| Expected term (in years) | 5.0 – 6.1 | ||||
| Expected volatility | 44.2% – 47.8% | ||||
| Average risk-free rate | 1.9% – 2.6% | ||||
| Dividend yield | — | ||||
As of December 31, 2025, the Company had approximately $34.1 million of unrecognized stock-based compensation expense related to RSUs and PSUs, which the Company expects to recognize over the remaining weighted-average vesting period of approximately 1.7 years. As of December 31, 2025, the Company had no unrecognized stock-based compensation expense related to options.
Total stock-based compensation expense by function was as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Marketing | $ | 1,064 | $ | 932 | $ | 1,550 | |||||||||||
| Operations and technology | 9,380 | 9,930 | 12,534 | ||||||||||||||
| Selling, general and administrative | 18,499 | 18,220 | 20,189 | ||||||||||||||
Total | $ | 28,943 | $ | 29,082 | $ | 34,273 | |||||||||||
During the years ended December 31, 2025, 2024 and 2023, the Company capitalized $0.3 million, $0.5 million, and $0.8 million of stock-based compensation expense to proprietary software, respectively.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.