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Indian startup employees cash out $1.7 Bn through ESOPs since 2020

Entrackr · 1m

The Indian startup ecosystem has witnessed an exponential rise in employee stock ownership plan (ESOP) buybacks since 2020. According to data compiled by TheKredible, over 100 startups have implemented ESOP buyback, liquidity, and payout programs worth around $1.7 billion in the past five years, starting from January 2020. This trend reflects startups’ commitment to rewarding talent, providing employees with financial benefits, and boosting workplace morale. As reported in our previous edition, 80% of the total buybacks were conducted by 20% of the startups. Year-on-year data highlights the evolution of ESOP buybacks. In 2020, only 11 startups participated, totaling a modest $50 million. However, the trend accelerated rapidly, with 40 startups completing buybacks worth $440 million in 2021. This was followed by 26 startups with $200 million in buybacks in 2022. The upward trend continued in 2023, with 14 startups generating an impressive $802 million through buybacks or liquidity events. As of October 8, 2024, as many as 17 startups have contributed $188 million to this growing total. Among the leading players in ESOP buybacks, Flipkart, Razorpay, Swiggy, Whatfix, and BrowserStack stand out as the top five. Sectors most actively participating include e-commerce, fintech, SaaS, edtech, and logistics. Notably, 28 unicorns have joined this trend, reflecting a commitment to their employees’ financial well-being even among highly successful startups. [2024 vs 2023] The IPO-bound foodtech firm Swiggy led the 2024 ESOP liquidity chart with $65 million. It was closely followed by SaaS company Whatfix, which recently announced $58 million in ESOP liquidity for employees and investors. Urban Company and Meesho ranked next, with $24.4 million and $24 million, marking their largest ESOP buybacks to date. Titan Capital co-founders Kunal Bahl and Rohit Bansal saw strong returns on their investment in Urban Company. Other notable buybacks include Pocket FM, Purplle, and Dehaat, while nearly 50% of startups did not disclose buyback amounts. Check the complete data at TheKredible. In 2023, Flipkart accounted for $700 million in ESOP liquidity as compensation for value lost in the PhonePe spin-off, while the remaining startups totaled $102 million in buybacks. [2022 vs 2021] In 2022, fintech unicorn Razorpay led as the largest wealth creator with a $75 million ESOP liquidation program. Similarly, Swiggy, after reaching decacorn status, announced a $23 million ESOP program. The year 2021 marked a high for buyback events, with companies like Flipkart, Swiggy, PhonePe, Udaan, and others announcing ESOP liquidity totaling over $440 million. However, recent budget proposals may impact ESOPs, as the Union Budget suggests treating share buybacks as dividend income starting October 1, potentially affecting employee retention strategies. [Conclusion] One thing that is quite clear is that ESOPs are a well accepted and integral part of startup compensation and reward plans today. Employees are no longer averse to or unfamiliar with the concept, and enough examples and data is available out there for them to make an informed decision on the fairness, and relevance of their firms ESOP plans, if any. Boosting it further is the recent string of IPOs, besides upcoming ones that will provide the kind of liquidity events few imagined even in 2022. If anything, we believe firms will be scrutinised more closely by markets and the media on the size and application of their ESOP plans going forward. ESOPs can look very disproportionate in retrospect at times, and firms will have to think through generous grants and the rules governing them for senior and board level grants especially.