The bump and later positive price movements benefits employees and founders a lot, therefore helps in retention and lower compensation costs for new employees etc and also investors who sell .
If an employee joins with ISOs based on a $40 share price, and the market price is $35 or $15 a quarter or two later, it is bad for morale. A bump, even a small one, means everyone is “in the black”, which is good for morale.
Once employees are transitioned to RSUs, it’s less of a concern, because they’re still making money, just less money. It’s a big concern for ISOs granted close to an IPO, though.
This is why some companies switch to RSUs within a year or so of an expected IPO date.
Any ISO's pre-ipo will have some strike price, that is typically rooted in some valuation- the valuation per share is really just a function of the number of shares outstanding and this routinely gets adjusted right before the ipo, but the value of those ISOs or other grant types remains the exact same- its the same as reverse split where the share price doubles, or a 2 for 1 split where the share price halves but you have twice the number of shares- its financially equivalent.
You are really concerned with the valuation of the company when your grants were given, and what the valuation of the company is on the open market, and in the case of ISOs really just where the valuation of your options puts you above water. The IPO price in itself has nothing to do with either of those things, aside from a very brief moment in time after the opening auction where the company is worth the IPO price * shares outstanding.
The only way having an IPO go down on the first day actually hurts an employee is if they start that day or are granted stock or options at the IPO price, and I don't believe this has ever happened. Stock prices don't matter, total company value does.
So with a large bump (like 100% on Snowflake for example), you defer a lot of tax to the future. And if you hold out 1 year until selling, you change a lot of that gain from income into long term capital gains (which has a lower tax rate)
