Moneycontrol
Jun 15, 2017 11:33 AM IST | Source: Moneycontrol.com

As startups grow precarious, Esops lose their prestige

“ESOPs are no longer the ‘assured win lottery ticket’ they used to be,” Vikram Bhardwaj, CEO of Redileon Partners, told the paper in an interview.

Startups have for long used employee stock option plan (ESOP) as an attractive part of compensation to lure the best talent. However, it is now losing sheen with top recruits bargaining to keep it out of their compensation.

Reputed executive search firms like Transearch, Antal International, Heidrick & Struggles are increasingly faced with candidates negotiating to trim the ESOP component in their salaries, according to a report in the Economic Times.

“ESOPs are no longer the ‘assured win lottery ticket’ they used to be,” Vikram Bhardwaj, CEO of Redileon Partners, told the paper in an interview.

In boom times, employees would easily accept ESOPs, but skepticism is on the rise now, Bhardwaj said.

One of the reasons behind the growing skepticism could be that the value accretion for some startups has not been very attractive considering funding is not coming by as easily. Funding received by startups nearly halved to USD 300 million in the first quarter of 2016 fell from USD 611 million in the first quarter of 2015. The numbers of funding remained quite stable though, according to VCCEdge’s Startup India Funding Report.

The uncertainty around big startups in India such as Snapdeal, has made employees more cynical about ESOPs.

Snapdeal, which was valued at 6.5 billion USD at its peak, is not valued by investors at any more than 1 billion USD as its largest investor SoftBank is trying to sell the ecommerce company off to flipkart or Paytm. Back in 2013, SoftBank had invested approximately USD 900 million in Snapdeal because it was considered to be a big competitor to other ecommerce-giants like Flipkart and Amazon in India.

As of now, around 2500-3000 current and former employees together hold 5-6 percent stake in Snapdeal in terms of ESOPs, insiders told Moneycontrol. These people are oblivious about how much their Esops are worth anymore.

Seemingly, the heydays of big startups are gone as more and more of such ventures are shutting down since 2016. For example, ecommerce site Fashionara and Sequoia and SAIF funded grocery delivery startup PepperTap shut down in 2016. The former was funded by Lightspeed and Helion Venture Partners, and it raised over USD 4 million in Series-A venture capital financing.
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