Despite funding winter, some Esop buybacks continue

Amritha Paitenkar, 30, is one such fortunate startup executive benefiting from what’s best described as a positively contrarian decision on ‘rewards’ in an industry now dominating precious column inches for the less flattering ‘r’ – retrenchments. The head of compliance at Vivriti Group raked in the equivalent of 18 months of salary when the startup closed its first Employee Stock Options (Esop) liquidity programme last month.

Executives who have been with the company for at least two years were eligible to participate: Paitenkar has been with Vivriti since 2018.

“It feels great to be working in a place that is giving employees an opportunity to create wealth even in a market like this,” said Paitenkar. “It encourages you to perform better.”
As the funding freeze lingers on, most start-ups are getting increasingly parsimonious with money and conserving cash. Several others, meanwhile, are laying off staff.

Hence, start-ups that have either completed or announced Esop buybacks in recent months are among the exceptions.

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While the first few months of 2022 saw Esop buybacks by the likes of Razorpay and Ninjacart, the second half has seen fewer such offers, which have also been smaller in size. These include content sharing platform SuperShare, healthtech startup Orange Health ($1 million), fintech startup Niyo and alternative data insights company Synaptic ($1 million). Student rental platform Amber has also announced its first Esop buyback next month.

Industry experts and founders said that not only did offering wealth-creation opportunities in these turbulent times instilled a stronger sense of loyalty and engagement among employees, but doing so also made the start-ups more attractive to external talent.

Last year, a record $400-million worth of Esops were bought back by Indian startups, a report by Nasscom and consultancy firm Zinnov showed. That number has plummeted this year, said Atit Danak, partner and head, CoNXT practice, Zinnov.

“Earlier, the biggest Esop programmes were rolled out by unicorns or about-to-be unicorns,” said Danak. “But the funding environment has been dull for the last few months; late-stage deals have reduced. There’s lower capital to work with, and keeping cash on the books is very important.”

The profile of companies announcing Esop buybacks has also changed.

“We are seeing mostly early-stage companies looking at buybacks,” Danak said. “Early-stage funding has been steady, and they want to show to the market that they are giving back to employees.”

There’s a very clear divide now in this market: Some startups are multiplying value, while some have lost investor confidence, said Vineet Sukumar, CEO, Vivriti Capital and Vivriti Asset Management.

“Every employee in our company has stock and the responsibility is on founders to build liquidity,” said Sukumar. “Now that we have reached a certain maturity, we wanted to give back to them. We want to make it an annual affair.”

Forty-seven team members received liquidity, resulting in around Rs 50 crore of wealth creation.

Saurabh Goel, CEO, Amber, said that with 400 team members and strong growth, the company believes that this is a good time for buybacks as doing so gives employees the confidence that Esops are not paper money.

There’s also a ripple effect in terms of the hiring aspect, said Goel.

“It has created a lot of buzz; we’ve seen a lot of people applying to us for jobs,” Goel said. “Senior executives from within the ecosystem and outside who had not really responded when we tapped them earlier for jobs are now reaching out to us on their own.”