A Bumper Diwali For Flipkart Employees: Board Approves $100 Mn ESOP Repurchase Plan

In what seems to be a bumper Diwali for Flipkart employees, the board of India’s most famous ecommerce startup has approved a plan to repurchase employee stock options in a $100 Mn ESOP repurchase plan. The move could benefit close to 6,000 current and former employees at Flipkart.

The share buyback plan will be one of the largest programmes till date in the Indian startup sector. As per ET sources, the overall corpus reserved for buyback of shares from employees is over $100 Mn.

Besides Flipkart, employees of its subsidiaries such as online fashion retailer Myntra and payments unit PhonePe will also be a part of the repurchase programme which is expected to close by December. Through the plan, employees will be allowed to sell a certain percentage of their vested shares under the programme.

Flipkart’s stock options are granted over a four-year period, with employees vesting them every month after the one-year threshold.

A query sent to Flipkart awaited response at the time of publication.

Flipkart And ESOPs In The Startup Space

The development comes after Flipkart successfully raised about $4 Bn in financing this year from investors SoftBank, Tencent, Ebay, and Microsoft in April this year. As per a company statement, the latest investment was done at a post-transaction valuation of $11.6 Bn. This number is significantly lower than Flipkart’s valuation in July 2015, $15.2 Bn, when it previously raised funds.

Post the funding, the homegrown ecommerce giant announced plans to reportedly issue differential stock options to its eligible employees. The move on Flipkart’s part comes as an attempt to protect its employees from the price drop in share value, post the funding round.

An email was sent by Flipkart Group’s CEO Binny Bansal, to all the employees who are part of employee stock option plan (ESOP) programmes across the company, including affiliates like Myntra and PhonePe. It stated that the company was considering the issue of a differential grant so that the total dollar value of shares allotted to an employee remain unchanged.

In a similar move, in 2015, Flipkart sold a marginal stake, worth $27 Mn-$30 Mn (INR 180 Cr-INR 200 Cr), in its employee trust fund to high-net-worth individuals, in a bid to allow employees to cash out their shares pre-IPO. In September 2016 as well, reports surfaced that Flipkart had issued ESOPs to over a third of its workforce. In July this year, Flipkart reportedly offered stock options to several senior executives of Jabong.com also under the ESOP plan.

As per the report, last year, the company had doubled the percentage of white-collar employees who were part of its ESOP programme to 35-40%. With this ESOP repurchase plan, a few senior former employees of the company could make “crores”, a trend that has come to light in other startups as well.

For instance this year alone, about 47 employees of Paytm have reportedly sold shares worth about $15.3 Mn (INR 100 Cr) to both internal and external buyers, according to company executives who declined to name the buyers. So it’s not founder Vijay Shekhar Sharma alone, who recently made it to the 6th “Hurun India Rich List 2017”, a list of the richest people in India with a cut-off at $153 Mn (INR 1,000 Cr), who is reaping the benefits of the startup’s success.

As per the report, over the past two years, over 100 Paytm employees have sold their shares. Last year, Paytm executives sold part of their ESOPs to the company’s external Board members like former Google and Uber executive Amit Singhal, WhatsApp’s Neeraj Arora, and Ruchi Sanghvi, etc.

Similarly last year, payments company Citrus Pay, which was acquired by bigger rival PayU for about $130 Mn saw 50 employees make money by selling their stock options. About 15 employees raked in over $150K (INR 1 Cr), with an office boy who was one of the first employees at the company taking home $75K(INR 50 Lakhs. Other startups like Ola, InMobi, MakeMyTrip and Info Edge have also similarly generated liquidity for their employees, showing that ESOPs are increasingly becoming an avenue for companies to hire and retain critical talent as well as generate cash.

With Flipkart employees getting liquidity opportunity through the ESOP repurchase plan, more startups will be encouraged to tread this route hopefully in the coming times.

 

(The development was reported by ET)