It’s a common trend in
start ups in India to offer employees a certain percentage of stock apart from salary. Mostly in the newcomers in the start up world, this is also a good way to lure talents. But one such strategy actually worked. Mumbai-based fintech startup
Citrus Pay was bought by online payments service provider PayU in last September in an all-cash deal valued at $130 million.
Now what happened was even an office boy took home Rs 50 lakh. Citrus Pay’s
stock-owning employees (read crorepatis) had found an avenue to encash their employee stock options (ESOPs) to hit the jackpot.
"
ESOPs were a lottery, are a lottery and will always remain a lottery,”
Rishabh Lawania, founder of Xeler8, a marking intelligence platform for venture capitalists and companies told
The Economic Times.
"The only thing that's gonna change in the nature of this
lottery is the probability of one winning it. As the startups ecosystem in India”, points out
Lawania, “moves towards consolidation, marked by mergers and acquisitions and buyouts - the latest being MakeMyTrip buying out rival firm
Ibibo earlier this week - the chances of winning this lottery will brighten massively.” He backs his hypothesis with data: while in the first quarter of this year the number of mergers and acquisitions of startups stood at 40, it jumped to 65 in the July to September period .
As funding is becoming too difficult to raise, Lawania opines, the trend will continue. This will increase the chances of winning the lottery, he told the financial daily, adding that for a startup employee, there are only two ways to encash ESOPs: either when the company gets listed or when it's bought. While listing is a bleak possibility for any Indian startup, a buyout is a more realistic option. In the past decades, the road to millions was mostly found by tech giants that made public offerings and got listed on the
stock exchanges.
"There were many who chose an all-cash package instead of ESOPs,, says
Gupta. And recently when they asked if they could revert to ESOPs, Gupta had little choice but to reply in the negative: they had missed the bus! Gupta maintains that if one wants non-linear growth in life, then one has to take risks as there is nothing called guaranteed outcome with ESOPs. Employees who join startups won't do justice to their risk ability if they don't opt for ESOPs in lieu of a cash component, he says, adding that he was sad to see over 95% of hires not caring for ESOPs.
Earlier it was not easy to convince the new recruits in a start up to value-creation opportunity through ESOPs. However, recently the trend is making a shift when the employees are trading off a fat salary package for stock. Some are even taking a pay cut as high as 75% just to ensure that they maximise their chances of a windfall.
