In 2006, 23andMe, Inc. established its 2006 Equity Incentive Plan, as amended (the “2006 Plan”), which provided for the grant of stock options and restricted stock to its employees, directors, officers, and consultants. The 2006 Plan allowed for time-based or performance-based vesting for the awards. The 2006 Plan was amended and restated at various times since its adoption.

On June 10, 2021, the shareholders of VGAC approved the 23andMe Holding Co. 2021 Incentive Equity Plan (the “2021 Plan”) and reserved 136,000,000 authorized shares of the Company’s Class A common stock for issuance thereunder. In addition, all equity awards of 23andMe, Inc. that were issued under the 2006 Plan were converted into comparable equity awards that are settled or exercisable for shares of the Company’s Class A common stock. As a result, each 23andMe, Inc. stock option was converted into an option to purchase shares of the Company’s Class A common stock based on an exchange ratio of 2.293698169. As of the effective date of the 2021 Plan, no further stock awards have been or will be granted under the 2006 Plan.

The 2021 Plan authorizes the issuance or transfer of up to 136,000,000 shares of Class A common stock. The number of shares of Class A common stock reserved for issuance under the 2021 Plan will automatically increase on January 1 of each calendar year, starting in 2022, in an amount equal to (i) 22,839,019 shares of Class A common stock, (ii) 3.0% of the aggregate number of shares of Class A common stock and Class B common stock outstanding, or (iii) a lesser number of shares determined by the Company’s Board of Directors prior to the applicable January 1. In November 2021, in connection with the Lemonaid Acquisition, the Company registered an additional 2,990,386 shares of Class A common stock issuable under the 2021 Plan, which represent shares of Class A common stock issuable in exchange for outstanding options initially granted under Lemonaid Health’s 2014 Equity Incentive Plan, as amended. As of March 31, 2023, 55,922,182 shares of the Company’s Class A common stock remained available for future issuance under the 2021 Plan.

Options under the 2021 Plan have a contractual life of up to ten years. The exercise price of a stock option shall not be less than 100% of the estimated fair value of the shares on the date of grant, as determined by the Board of Directors. For Incentive Stock Options (“ISO”) as defined in the Internal Revenue Code of 1986, as amended (the “Code”), the exercise price of an ISO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the underlying stock on the date of grant as determined by the Board of Directors. The Company’s options generally vest over four years. Under the 2021 Plan, stock option awards entitle the holder to receive one share of Class A common stock for every option exercised.

In connection with the Merger, all of the 23andMe, Inc. option holders received an equivalent award at an exchange ratio of 2.293698169 that vest in accordance with the original terms of the award. The Company determined this to be a Type I modification but did not record any incremental stock-based compensation expense since the fair value of the modified awards immediately after the modification was not greater than the fair value of the original awards immediately before the modification.

Under the 2006 Plan and 2021 Plan, RSUs may be granted to employees, non-employee directors and consultants. The RSUs vest ratably over a period ranging from one to four years and are subject to the participant’s continuing service to the Company over that period. Until vested, RSUs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.

In February 2022, the Compensation Committee of the Company’s Board of Directors adopted a RSU conversion and deferral program for non-employee directors. The purpose of the program is to provide non-employee directors with the option to convert all or a portion of their cash compensation into a RSU award under the 2021 Plan and the opportunity to defer settlement of all or a portion of their RSU awards. As of March 31, 2023, four non-employee directors had elected to convert all of their cash compensation into RSU awards, and two non-employee directors had elected to defer settlement of their RSU awards under the program.

On June 9, 2022, the Compensation Committee of the Company’s Board of Directors adopted an annual incentive plan (the “2022 AIP”), pursuant to which, beginning in fiscal year 2023, which began on April 1, 2022, employees and certain service providers of 23andMe, Inc. and its affiliates will be eligible to receive annual incentive bonuses in the form of cash or RSUs issued by the Company under the 2021 Plan, based upon the Company’s achievement of certain pre-established financial, operational, and strategic performance metrics. The fiscal 2023 annual incentive bonuses will be paid in the form of RSUs (collectively, the “2022 AIP RSUs”) and the number of RSUs will be determined by dividing the dollar amount of the 2022 AIP RSUs by the trailing average closing price of the Company’s Class A common stock for the 30 days preceding the date of payment (or such other number of days determined by the Compensation Committee). The Company accounts for the 2022 AIP RSUs as liability awards and adjusts the liability and corresponding expenses at the end of each quarter until the date of settlement, considering the probability that the performance conditions will be satisfied. The Company recorded stock-based compensation expense related to the 2022 AIP RSUs of $18.9 million for the fiscal years ended March 31, 2023. As of March 31, 2023, the liability of the 2022 AIP RSUs was $18.9 million, which was included in other current liabilities on the consolidated balance sheet.

Stock option activity and activity regarding shares available for grant under the 2021 Plan are as follows:


	Options Outstanding
	Outstanding Stock Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
	(in thousands, except share, years, and per share data)
Balance as of March 31, 2022		73,609,565		$	4.21	6.9		$	35,979
Granted		4,866,230		$	3.50
Exercised		(2,748,796	)	$	1.53
Canceled/forfeited/expired		(7,676,247	)	$	4.75
Balance as of March 31, 2023		68,050,752		$	4.20		6.0	$	10,621
Vested and exercisable as of March 31, 2023		48,034,690		$	4.14		5.0	$	7,743

The weighted average grant date fair value per share of options granted for the fiscal years ended March 31, 2023, 2022 and 2021 was $2.42, $4.44 and $3.02, respectively. The total intrinsic value of vested options exercised for the fiscal years ended March 31, 2023, 2022 and 2021 was $4.6 million, $25.6 million and $47.6 million, respectively. As of March 31, 2023, unrecognized stock-based compensation cost related to unvested stock options was $65.9 million, which is expected to be recognized over a weighted-average period of 2.5 years. Due to a valuation allowance on deferred tax assets, the Company did not recognize any tax benefit from stock option exercises for the fiscal years ended March 31, 2023, 2022 and 2021.

The Company estimated the fair value of options granted using the Black-Scholes option-pricing model. The fair value of stock options is being amortized on a straight-line basis over the requisite service period of the awards.

The weighted average Black-Scholes assumptions used to value stock options at the grant dates are as follows:


	Year Ended March 31,
	2023						2022						2021
	Min			Max			Min			Max			Min			Max
Expected term (years)		6.0			6.8			3.3			6.1			4.0			6.1
Expected volatility		76	%		81	%		72	%		75	%		61	%		68	%
Risk-free interest rate		2.8	%		4.2	%		1.0	%		2.5	%		0.2	%		0.5	%
Expected dividend yield	—				—		—				—		—			—

The following table summarizes the RSU activity under the equity incentive plans and related information:


	Unvested RSUs			Weighted-Average Grant Date Fair Value Per Share
Balance as of March 31, 2022		10,676,378		$	9.70
Granted		26,940,560		$	3.28
Vested		(7,062,152	)	$	6.23
Canceled/forfeited		(3,992,220	)	$	5.53
Balance as of March 31, 2023		26,562,566		$	4.73

As of March 31, 2023, unrecognized stock-based compensation expense related to outstanding unvested RSUs was $116.8 million, which is expected to be recognized over a weighted-average period of 3.0 years.

In November 2021, in connection with the Lemonaid Acquisition, the Company granted 3,747,027 shares of Class A common stock with an aggregate grant date fair value of $43.9 million to two recipients, each of whom was a former stockholder and officer of Lemonaid and each of whom, following the closing of the Lemonaid Acquisition, joined the Company’s management team. The shares vest over a four-year period in quarterly installments beginning on February 1, 2022, subject to the respective recipient’s continued employment with the Company. In connection with the Lemonaid Acquisition, each of these recipients entered into a relinquishment agreement that provides that during the four-year period that commenced on November 1, 2021 (the “Protection Period”), the Company will not (i) terminate the recipient employment without cause, (ii) materially reduce the recipient’s base salary or the benefits to which similarly-situated executive employees of the Company or the Company’s subsidiaries are entitled, other than a broad-based reduction to the same extent that applies to such similarly-situated executive employees, or (iii) relocate the recipient’s principal place of employment to a location outside of a 50-mile radius of their current principal place of employment (each a “Relinquishment Triggering Event”). If any such Relinquishment Triggering Event occurs during the Protection Period or in the event of recipient’s death or disability, then the unvested portion(s) of these awards will immediately vest. The Company recognized stock-based compensation expense related to these awards of $11.0 million and $4.5 million for the fiscal years ended March 31, 2023 and 2022, respectively, within general and administrative expenses. Unrecognized stock-based compensation expense of $28.4 million is expected to be recognized over a weighted average period of 2.6 years.

On June 10, 2021, the shareholders of VGAC approved the Company's ESPP. A total of 11,420,000 shares of the Company’s Class A common stock were initially reserved for issuance under the ESPP. Pursuant to the terms of the ESPP, the number of shares of the Company’s Class A common stock reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2023, by the lesser of (i) an amount equal to one percent (1.0%) of the total number of shares of Class A and Class B common stock outstanding as of the last day of the immediately preceding December 31st, (ii) 5,000,000 shares, or (iii) a lesser number of shares as determined by the Board of Directors in its discretion. As of March 31, 2023, 2,642,313 shares of the Company’s Class A common stock have been issued and 16,349,302 shares remained available for future issuance under the ESPP.

The ESPP provides for concurrent 12-month offerings with successive six-month purchase intervals commencing on March 1 and September 1 of each year and purchase dates occurring on the last day of each such purchase interval (i.e., August 31 and February 28). The ESPP contains a rollover provision whereby if the price of the Company’s Class A common stock on the first day of a new offering period is less than the price on the first day of any preceding offering period, all participants in a preceding offering period with a higher first day price will be automatically withdrawn from such preceding offering period and re-enrolled in the new offering period. The rollover feature, when triggered, will be accounted for as a modification to the preceding offering period, resulting in incremental expense to be recognized over the new offering period.

The weighted average grant date fair value of ESPP award per share for the fiscal years ended March 31, 2023 and 2022 was $1.35 and $1.84, respectively. The Company uses the following weighted-average assumptions in the Black-Scholes model to calculate the estimated fair value of the ESPP awards:


	Year Ended March 31,
	2023						2022
	Min			Max			Min			Max
Expected term (years)		0.5			1.0			0.5			1.0
Expected volatility		78	%		109	%		77	%		86	%
Risk-free interest rate		3.3	%		5.2	%		0.6	%		0.9	%
Expected dividend yield	—				—		—				—

Total stock-based compensation expense, including stock-based compensation expense related to awards classified as liabilities, was included in costs and expenses as follows:


	Year Ended March 31,
	2023		2022		2021
	(in thousands)
Cost of revenue	$	10,874	$	4,029	$	858
Research and development		48,837		26,540		21,771
Sales and marketing		8,635		5,122		4,081
General and administrative		47,671		22,242		59,986
Total stock-based compensation expense	$	116,017	$	57,933	$	86,696

The 2006 Plan allows for option awards that include the right to early exercise options for shares of common stock. For the options granted to the CEO (who is a related party), the Company’s Board of Directors authorized the CEO to exercise unvested options to purchase shares of common stock. Under the terms of the 2006 Plan, any shares issued as a result of the CEO’s early exercise are subject to repurchase, at the option of the Company, at the original issuance price in the event of the CEO’s termination of service as a Service Provider (as defined in the 2006 Plan) for any reason, until the options would have been fully vested. In August 2020, the CEO was granted options for 6,881,095 shares, which were eligible for early exercise. In September 2020, the CEO exercised all 6,881,095 unvested stock options. The cash proceeds received for such exercise were $34.7 million. In February 2021, the CEO exercised an option for 11,029,071 shares of Class B common stock, including both vested and unvested shares, for a cash purchase price of $32.6 million. During the fiscal year ended March 31, 2021, the CEO exercised a total of 11,108,906 unvested stock options early for a total of $47.2 million in cash proceeds. There were no early exercises during the fiscal years ended March 31, 2023 and 2022.

In February 2021, the Board of Directors modified option awards granted to the CEO, which accelerated the vesting of all 15,621,041 unvested common shares previously purchased by the CEO. Stock-based compensation expense of $40.4 million was recorded to General and Administrative expenses which represented the recognition of the remaining unrecognized compensation expense associated with these grants as of the date of modification. As a result of the Board-approved accelerated vesting of these early exercised unvested shares, there were no early exercise liabilities as of March 31, 2023 and 2022.