Snapdeal crisis: Employees may lose wealth worth crores promised under ESOPs
ESOPs are benefit plans that are offered to employees in the form of stakes in the company that can be liquidated when the company goes for a buyback event
April 14, 2017 / 02:38 PM IST
An employee is seen at the front desk of Snapdeal headquarters in Gurugram on the outskirts of New Delhi, India, April 3, 2017. REUTERS/Adnan Abidi
Former senior employees of e-commerce firm Snapdeal who were lured through attractive employee stock option plans (ESOPs) are a worried lot these days.
Recently, founders, Kunal Bahl and Rohit Bansal in an e-mail, tried to assure the existing employees that the well-being of employees if their top and only priority. But, there is little clarity in terms of what happens to these employees or even the former employees ESOPs offered to them at the time of joining.
ESOPs are benefit plans that are offered to employees in the form of stakes in the company. Employees can liquidate their ESOPs when the company goes for a buyback event. Usually, it happens either when a company raises a funding round or when it goes for an initial public offering.
In the last couple of years, there have been multiple instances where ESOPs have been regarded to be game changers.
Citrus Pay made multiple employees including one of its peon, millionaires when it got acquired by larger rival PayU last year. Around 47 employees at online payments and e-commerce firm Paytm were also able to sell off shares worth about Rs 100 crore to both internal and external buyers in the last couple of months, according to a media report.
Unfortunately, Snapdeal is going through a moment of crisis.
A potential takeover by Flipkart and the devaluation of the firm from a whopping USD 6.5 billion earlier to about USD 1 billion now, is likely to turn its employees stock options into just papers.
Moneycontrol spoke to multiple former and current employees of the company besides industry experts to understand what the current position is and what can possibly be expected if the merger happens at the declined valuation.
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"Everything depends upon the entry point of the employees. People who will be hit the most will be the ones who joined recently when the valuation of the company was at its peak. Old employees are likely to have a chance to make some money because they came in at a low entry point," said a lawyer who requested anonymity.
Around 2500-3000 current as well as former employees hold around 5-6 percent stake in Snapdeal in terms of ESOPs, according to people privy to the matter.
"There is no clarity what the ESOPs are worth now. Nobody is discussing what is to be done. A lot of people came because of the ESOPs. There's a lack of communication from the company right now," said a former executive who spent nearly five years in the organisation.
He also claimed that he was never allowed to sell his ESOPs. "It was like an unsaid rule. You have to take an approval from the promoters and the investors if you plan to liquidate your ESOPs. Somehow they convinced me that they had a plan for people having decent ESOPs," he said adding that he now feels he should have proceeded then, especially when even the founders themselves vested some amount of their stake in the company in 2015.
According to a media report, for the financial year ending March 31, 2015, the founders earned Rs 51.43 crore for payment against founder stock options.
Another person privy to the matter said that not just the founders but even a chunk of senior executives were able to liquidate their stock options during multiple events that happened in the past including fund-raising rounds. He declined to share further details.
Snapdeal last received a funding of USD 200 million in 2016 from investors led by Canada’s Ontario Teachers’ Pension Plan which had a mix of primary as well as secondary components.
"It is a little disappointing that the company has not informed us anything on what plans they have for us. I have mentally written down the stock options," said another former Snapdeal executive who spent nearly two years at the company and could not liquidate his stock options.
According to him, employees at Snapdeal are given access to a portal where they can see the value of their ESOPs. But since he has exited now, that option is no more available.
While a lot of Snapdeal employees were reported to be having hefty salaries there were some, who also joined the company for nominal hikes but impressive stock options, said this executive.
"Such a situation is not completely unwarranted. During 2013-2015, a lot of companies got overvalued. The stock options were given for the high valuations. Today there have been down rounds. Those stock options have probably been undervalued. Employees would want to probably let that option expire," said an industry expert requesting anonymity.
He also said that in such situations the founders cannot be solely blamed. "The employees were also ambitious when they accepted the ESOPs. These are illiquid stocks with inherent risk," he said.
Over a dozen senior executives from multi-national firms such as Pepsi, Unilever, Airtel, Procter & Gamble had joined the company after it raised the USD 627 million round from Softbank in 2014.
Most employees received options when the company was valued at over USD 4.5 billion. Now with the expected deal with Flipkart amounting to almost nothing, the senior employees would have a lot to lose.
Here is how Snapdeal’s stock option plan worked:
Each option was valid for a period of 10 years. An employee getting an option would have to serve in the company for a period of at least one year to have a chance of vesting the option.
Vesting can be done in two ways.
In some plans, it was bracketed at 25 percent dilution each year for a period of four years, extendable up to 10 years. For some, a dilution event could occur as 10% in the first year, followed by 20, 30 and 40 percent in the consecutive years. However, the plan would become active only after a year of service.
Simply put, a senior employee with 100 Snapdeal ESOPs, could vest 25 options each for a period of four years after serving just one year in the company.
One of the senior employees was still hopeful. “Once the company gets sold, it is likely that founders could transfer some of their exit cash towards honouring stock options held by past senior employees to keep their word,” he said.