Bonanza for employees as funding spurs startups to buyback ESOPs

Flipkart's board has approved a $100-million buyback of employee stock options

A spurt in funding and large acquisitions in India's consumer internet space over the past year has led to employees of these firms cashing out their stock options and making huge returns.

According to a report in the Economic Times, the Flipkart board has approved a $100-million buyback of employee stock options. The move, which could benefit as many as 6,000 current and former employees, comes soon after Flipkart raised close to $4 billion from investors this year.

Flipkart isn't alone in celebrating its success with employees. Paytm, the country's largest mobile payments firm also gave employees a chance to cash in on their stock options earlier this year, soon after Chinese internet giant Alibaba invested $250 million in the firm.

Around 4 per cent of Paytm is held by its employees. Soon after the funding round in March, around 50 employees sold shares worth Rs 100 crore to internal and external investors. Buying shares from employees also allowed investors such as Alibaba and promoter Vijay Shekhar Sharma increase their shareholding in the company.

Fundraising wasn't the only instrument that helped Indian Internet firms generate liquidity for their employees. Large acquisitions such as that of PayU's acquisition of smaller rival Citrus Pay for Rs 860 crore last year, saw 5 per cent of the transaction value going towards buying out employee stock options.

Around 50 employees of Citrus Pay benefited from the acquisition, getting paid a cumulative of around Rs 43 crore.

While there have been some success stories for employees of large Internet companies in India, such transactions are still few and far apart. Last year, when India's startup space saw a trend of companies being robbed of their soaring valuations, employees of several firms questioned how valuable ESOPs really were.

A prime example of things gone bad can be Snapdeal. The company, which was once India's second most valuable startup, is today struggling for survival. While the sale of the company to Flipkart might have given stake-holding employees some relief, the valuation of under $1 billion, which investors were agreeing to would have eroded the chances of huge gains for employees.

But with the sale to Flipkart not going through, the chance of employees getting any benefit through sale of their stock options went out the window.