Aug 3, 2022
July sees ESOP liquidity dry up as companies announce pool expansions and fresh allocations
The funding winter is finally playing catchup with ESOP liquidity pools as well as companies are looking to conserve cash on their
Do you know what ESOP stands for?
Do you know what ESOPs are?
How do I acquire ESOPs?
Can I buy them?
These are just some of the many questions asked by employees across the start-up community. What seems to be the issue is a lack of awareness from both employee & employer side. Employers are unaware of the possibilities through ESOP distribution and Employees are unaware of the opportunity’s existence. Srikant Prabhu, Head of Partnership and GTM Initiatives at QAPITA, talks about “Fables of ESOPs”, an initiative towards spreading awareness about ESOPs across the board.
The Author
Srikanth is an Engineer and MBA graduate who has spent majority of his time working in the financial world, first with Goldman Sachs and Royal Bank of Scotland in the Investment banking world and then as one of the founding members of Social Alpha, a VC-fund for investing in impact start-ups.
The journey with Qapita
Srikanth is one of the early members who joined QAPITA’s business team in early 2021. His personal experience of dealing with Cap Tables and Spreadsheets while working in the VC ecosystem helped him connect with QAPITA’s resolve to automate the Cap Table and ESOPs management process through a SaaS platform.
**The origin of “Fables of ESOPs”? **
Srikanth recalls, when he was joining the QAPITA team, he wasn’t aware of how large ESOPs as a concept would get. Though it was one of the pain-points that QAPITA was trying to solve back then, he had no idea that it would get so democratized and mainstream like it is now. The ESOP Revolution, like Srikanth calls it, happened right in front of his eyes when he started his journey in Jan 2021.
People were hearing news about wealth creation for employees through ESOP Liquidation, when large companies like Urban Company and Razorpay announced their ESOP Liquidity programs and when Filpkart created a massive exit opportunity for their shareholders and ESOP holders in 2018. As a matter of fact, the story of Infosys, 20 years back, is testament to the wealth making potential of employee stock options. Yet, very few expected ESOPs to become such a mainstream aspect of our day-to-day start-ups. ESOPs have become so democratized now; employees can liquidate their vested stocks after just 2-3 years of working in the company.
There were, and still are, a lot of new things happening in the eco-system, there is the need to dig deep and learn more to get a better understanding of these happenings, documenting the things one learns is a good way to retain it, explaining it to someone else is an even better way to extend this retention period - all these thoughts left to play around in an engineer’s brain is what led to the creation of the blog series “Fables of ESOPs” by Srikanth Prabhu.
It started as a pilot with a couple of blogs. Lot of people, especially QAPITA’s founder Ravi Ravulaparthi, appreciated and further encouraged him to continue writing. And after a couple of editions, Srikanth decided to make it a regular blog series. The questions that he receives from his readers through mails and his own selfish urge to know what’s happening in the eco-system is what encourages him to get back, month on month, to the blog.
How can a participant in the start-up eco-system benefit from reading the blog?
“My saying that it was a selfish interest in fact answers the question, because I'm an employee of Qapita and I wanted to know more about ESOPs” says the author. ESOPs are becoming more popular and prominent now. Nowadays, employees are getting their ESOPs as well, along with the CTCs in their offer letter, and without much understanding of what they mean or their potential upside, employees will not be able to comprehend the various nuances or do the right negotiation.
One of the blogs in the “Fables of ESOPs” series is on what one should ask their HR or founder about ESOPs when they are interviewing them; now knowing this would, one, give an impression that you know about ESOPs and its value creation possibility and, two, help them address any concerns or risks that the policy might give them, right at the beginning.
Also, many people ignore that tax associated with it, which might haunt them later on. So, given the era that we are entering where most of the value creation we make will be through start-ups value creation, employees need to be much more informed about ESOPs.
Happenings of ESOPs – Which companies have announced their ESOP liquidity programs? How long did they take? Who all are eligible to participate? Both Employees and Founders need to be informed about the happenings of ESOPs for the founders to stay relevant in the game and the employees to ask founders and HR to be contemporary in the way they issue ESOPs
Eventually “Fables of ESOPs” will take shape of a community for employees to network, have discussions, share information only then, the author believes, the knowledge will get enhanced for everyone and reap benefits from it
I am not part of the Start-up Ecosystem. Should I spend time on this?
In the long term - Yes, but maybe not immediately. If you are not dealing with ESOPs, either as an employee or an employer, you may not be benefit immediately from reading the blog.
India is already being called a SaaS superpower as all the SaaS companies are origination out of India. McKinsey reports and various other reports suggests that in the next 10 years, the largest number of start-ups will start originating from India. Number of start-ups with be 10X or even much more in 10 years, which means more than 10X employees and founders will come out from the same country. India will soon become a huge entrepreneurial eco-system, with entrepreneurs and employees who are entrepreneurial and want to join a start-up.
Given this, not too farfetched, future possibility, everyone will have to be aware of ESOPs and happenings in the start-up world to stay relevant. In 2021, about $450 million worth money was deployed for liquidating ESOPs, which means that much money went to tens and thousands of employees last year; Even larger amount became as good as cash because at least 5-6 companies like NYKAA, FreshWorks, Paytm etc went for IPO. So, ESOPs have suddenly become more mainstream, so every layman or lay-person should understand that ESOPs are able to generate wealth, and if they plan to participate in the start-up ecosystem and to stay relevant, they need to form a basic understanding for it.
Afterall the blogs are just 6 min reads, which the investment banker inside the author feels is an investment with zero risk and very high returns.
How Fables of ESOP affects or adds value to the ecosystem?
The author and the founders of QAPITA, right from the beginning, looked at “Fables of ESOPs” as an ecosystem initiative. The intention behind naming the blog series “Fables of ESOPs” also was that we wanted to stitch more fables by building an ecosystem or a community of founders who want to be friendly to their employees with regards to ESOPs and their structure, a community of employees who are well informed about their ESOPs that they receive or participate it.
Fables of ESOPs adds value to the Ecosystem in many ways,
One, it is setting the narrative. It is making ESOPs mainstream. It is nudging founders to start thinking of ESOPs much early on in their journey as they also want to attract best talent and one of the sustainable and most promising way in which they can attract the best talent is by issuing ESOPs.
Two, it evangelizes best practices. Fables of ESOPs has and will come up with more reports and research from the founder community and employee community, tell more fables to help everyone participating in this eco-system to stay relevant and connected.
Three, it helps in bringing together a community. There are employees, founders, practitioners, service providers who want to structure ESOPs, file for compliances, ensure that taxation is done right on one side, and enablers who can support them in doing so on the other side, “Fables of ESOPs” will seek to become a platform where these collaborations can be made possible
The author reminisces the journey so far of curating the fables. Srikanth shares that the readers sending Thank-You mails because the blog helped them negotiate their ESOPs better and few others wanting to connect to discuss their specific issues regarding ESOPs are very satiating experience and encourages him to further connect with the eco-system and write more fables.
