LetsVenture is launching a campaign to build a standardised framework for startups’ employee stock ownership plans (ESOPs). The angel investment firm believes that such a standardised framework will help startups to attract talent from top global companies.
The new framework is expected to give startup employees more transparency on their stock options and the flexibility to liquify their shares in case of certain events.
“We are opening up a discussion on what are the ESOP and liquidity policies that can actually become meaningful for startup employees. Adoption of best practices by unicorns, and ‘soonicorns’ will ensure that the next wave of talent actually end up joining Indian startups,” said Director of LetsVenture, Ganesh Nayak.
LetsVenture campaign will aim to identify ESOP best practices and later make its learnings open source for startups and entrepreneurs to implement. A similar campaign aimed at standardising term sheet for early stage startups was also launched by LetsVenture in 2017
Shanti Mohan, founder of LetsVenture said that this campaign will help them figure out a design that will eventually enable secondary transactions in Indian startups. Secondary transaction means buying and selling of an investor’s stakes in a private company.
Currently, ESOPs in India are considered as income and are taxed accordingly, whenever employees decide to use their options and convert the ESOPs into shares. There can be two stages for the levy of tax on shares allotted under ESOP:
- First levy occurs when shares are allotted to the employee after he has exercised his option on completion of the vesting period and,
- Second levy occurs when the employee opts to sell the allotted shares under the ESOP
Also, India’s Department for Promotion of Industry and Internal Trade (DPIIT) was recently reportedly to have started discussions with the country’s finance ministry to tax Employee Stock Ownership Plan (ESOP) options only once at the time of sale. This development came as part of the government’s effort to make India a more conducive location for startups.
Since October 2018, LetsVenture has been registered as an alternative investment fund (AIF) with SEBI (Securities and Exchange Board Of India).Alternative Investment Fund means a privately pooled investment vehicle which collects funds from sophisticated investors and invest it, for the benefit of the investors. LetsVenture as a platform enables angels, family offices, and foreign funds to invest in startups and venture capital funds.
It is backed by investors such as Accel, IDG Ventures, Infosys founder Nandan Nilekani, Wipro chief strategy officer Rishad Premji, Tata Group chairman emeritus Ratan Tata, IT veteran Mohandas Pai, and Singapore-based entrepreneur Karan Thakral.