Bengaluru-headquartered Indian foodtech unicorn Swiggy has initiated an ESOP liquidation program worth around $7-9 Mn (INR 51-66 Cr), to reward its employees as the food delivery business is making a recovery to pre-Covid levels.
Girish Menon, vice president of Human Resources at Swiggy said that as the food delivery business makes a recovery and “the future continues to look promising, we want to reward our team that has worked relentlessly over the last many months with a meaningful wealth creation opportunity through an ESOP liquidity program.”
Menon added that 40% of the company’s employees — both current and former — with ESOP benefits, would be able to participate in the exercise. Some of them will be able to liquidate their ESOPs at as much as 3x premium of the allotted price.
The Swiggy ESOP liquidation program will see participation from the family offices of leading industrial houses in India and high network individuals (HNIs).
Meesho Announces ESOP Buyback
Meanwhile, another Bengaluru-based Indian startup, social commerce platform Meesho has announced an ESOP buyback program worth around $5 Mn (INR 37 Cr), the company said in a press statement.
This is the second buyback by the company where the eligible employees will be eligible to exercise their option to sell up to 100% of their vested ESOP shares. Employees ranging from junior most executives to senior leadership will take part in the exercise. Meesho had last facilitated ESOP buyback worth $1 Mn in February this year.
“This venture is driven by a sense of entrepreneurship and responsible ownership on the part of each employee of the company, hence, with this second buyback, we want to acknowledge their continued efforts and reward them for their contribution in building Meesho and thereby instil confidence in our existing and potential employees,” said Vidit Aatrey, founder and CEO, Meesho.
Swiggy and Meesho have joined several Indian startups who’ve initiated ESOP liquidation or buyback programs this year.
Last month, Bengaluru-based edtech platform and one of the latest entrants in the Indian unicorn club, Unacademy, announced an ESOP buyback program worth INR 25-30 Cr, which will take place in December this year.
With its Series F round of funding worth $150 Mn led by Japanese multinational conglomerate SoftBank in September, Unacademy became the latest entrant in India’s unicorn club (startups with a valuation of $1 Bn or more). This year, Unacademy has also acquired edtech startups, namely PrepLadder, Mastree, Kreatryx and CodeChef, thus widening its pool of offerings for students and moving closer to becoming an edtech ‘super app’, one with a range of offerings to offer users complete learning experience.
Several Indian startups such as Zerodha, CarDekho, BharatPe, Vy Capital and Mobile Premier League (MPL) have announced ESOP buybacks this year. The buybacks assume more significance when they happen in a year where many Indian startups have witnessed a financial crunch amid the Covid-19 pandemic.
For companies that are unlisted, ESOPs for its employees are useless. Hence, a partial exit is simulated for the employees when the company buys back ESOPs from its workforce at the prevailing stock price of the company.
Why Startups Are Increasingly Keen On ESOP Buybacks
Recently, many startups have given ESOPs to their employees in order to retain talent and incentivise financially. “In the past, founders have often encashed some of their stock holdings during higher series investments. But ESOP encashment for employees has become popular only recently,” the founder of Thinvent Technologies and business consultant Saurabh Jain told Inc42.
ESOP buybacks is a relatively recent phenomenon with startups. The trend started in 2018 when Flipkart announced a 100% buyback option of vested ESOPs. “It helps startups to garner experienced people from the market & also motivate its own employee by retaining good talents in the company,” Noida-based financial advisor Harsh Chaturvedi told Inc42.
Why Do Employees Choose ESOPs?
ESOPs allow an employee at a startup to become a bigger part of the success of the company. Founders and investors share the wealth that the company creates with employees through ESOPs.
Such buybacks can be called a method of employee compensation for startups. The scheme is offered to improve pay packages thereby ensuring a higher employee retention rate, which is the biggest challenge faced by many startups today.
“Most employees of startups are youngsters who are generally not aware of ESOPs. When they come to know, it’s a great feeling and they feel part of the team. Startups today also want to share profits with employees. It gives employees better ownership,” Harsh Jain, cofounder and COO of wealth management platform Groww, told Inc42.