Lightspeed and Moore Strategic Ventures become investors in Razorpay by buying employee shares worth $75 mn

Razorpay Founders Shashank Kumar & Harshil Mathur

B2B payments and neobanking platform Razorpay is looking to get new investors on board through a share sale of $75 million by its employees, the company said on May 10.

The purchase will be led by Lightspeed Venture Partners along with participation from Moore Strategic Ventures who will subsequently join the company’s cap table.

This will also be Razorpay’s fourth and largest Employee Stock Ownership Plan (ESOP) buyback till date, and the second largest in the startup space after Flipkart’s Rs 600 crore buyback in July 2021. 650 of the startup’s existing and former employees will be eligible for this across roles including software engineers, product managers, customer experience agents, sales, and administrative staff.

In December 2021, Razorpay’s valuation had jumped from $1 billion to $7.5 billion after the startup raised $375 million in its largest round. In an interview with Moneycontrol, Razorpay’s founder and CEO Harshil Mathur said that the current ESOP sale will be done at a discount to preference shares, as secondary share sales are usually done.

“There is no change in the valuation of the company as part of the transaction. The company is not even going to be a party to the transaction. These are investors who wanted to put money into the company. But we are very well capitalized so we decided to use this opportunity to create wealth for our employees,” Mathur said.

"However, we maintain a discount of 15 percent between the common and preference shares. This is a transaction with common stock so the purchase will happen at 15 percent to our last preferred price," Mathur said.

Employees will be allowed to sell up to 30 percent of their vested ESOP shares. The eligible employees can even choose to not sell their shares in anticipation of getting a better valuation in the future, meaning there could be a possibility that the cumulative sale may close at lower than $75 million too.

“It’s up to the employees how much they want to sell, they may choose not to sell. The investors will buy what is available,” Mathur explained.

Aditya Sharma, Partner, Growth Equity, Lightspeed Ventures said in a statement, “Razorpay is pioneering solutions across neo-banking, SME payments, and workflow-related platforms while continuing to strengthen its leadership position in the enterprise segment. We look forward to bringing in strong synergies and resources from across the global Lightspeed platform to serve Razorpay.”

Razorpay conducted its first ESOP sale in November 2018 for its 140 employees then. The second and third ESOP sales were conducted in November 2019 and March 2021, during which 400 and 750 employees respectively were eligible. The March 2021 buyback was worth $10 million, the amounts of the first two buybacks are undisclosed. To date, the company has awarded ESOPs to 1,940 existing and former employees across levels.

Mathur added that Razorpay is not looking to raise funds for the next 12-18 months at least as the company is well-capitalised.

In the financial year 2020-2021, Razorpay reportedly turned profitable with Rs 7 crore in profits and revenues came in at Rs 844 crore.

On the growth that the company will see in FY22, Mathur said that he is hoping that the revenues will double on the back of the growing Total Payment Volumes (TPV). In 2021, the startup clocked in TPV of $60 billion and is targeting $90 billion in 2022.

In 2022, the company made its first two acquisitions. It acquired Malaysian fintech Curlec for $20 million and Pune-based payments solutions provider iZealiant Technologies for an undisclosed amount.

Over the past few months investment sentiment has dampened and valuations of private companies have realigned led by falling stock markets, fears of higher interest rates and inflation, a plus for Razorpay which is looking to continue its acquisition spree.

“If we find a good team with a strong product capability that can add to Razorpay then we'll definitely go for that. But yes, the current environment has made some of these deals a lot more easier,” Mathur said.

Founded by IIT Roorkee alumni Mathur and Shashank Kumar in 2014, Razorpay counts Facebook, Ola, Zomato, Swiggy, Cred and others as its customers. The company also has a neobanking platform for businesses called RazorpayX is hoping to grow its merchant count from 8 Million to 10 million in 2022.