Indian Startup Ecosystem Recorded Highest Ever ESOP Buyback in 2021

2021 has been an unprecedented year for Indian startups in several ways. Aside from the record number of unicorns created and the largest amount of capital raised by Indian startups, we've seen a significant increase in the number of startups raising funds at an early stage.

On the employee side, we're seeing a lot of professionals and freshers considering a career in startups because these well-funded companies can provide both the right opportunity and attractive incentives to attract and retain good talent.

ESOPs became a common form of compensation for startups and employees in 2021. ESOPs are no longer just a one-liner on your offer letter; they have evolved into a real tool for achieving financial independence early in one's career.
The year also saw a surge in the number of employee stock ownership plan (ESOP) liquidity programmess by startups at all stages. Throughout the year, more than a dozen Indian startups facilitated or announced ESOP buyback programmes totaling approximately $440 million. When compared to the previous year, this represents a more than eight-fold increase in ESOP buybacks.

Employees at Indian startups have thus unlocked a Unicorn's worth (>$1 billion) from their ESOPs (which is 12 times what was unlocked in 2020!).

According to research, companies such as Flipkart, Swiggy, PhonePe, Chalo, ShareChat, Razorpay, CRED, Browserstack, Khatabook, Spinny, Zerodha, Unacademy, upGrad, and HealthifyMe have conducted ESOP buyback programmes in large amounts of $10 million.

According to publicly available information, approximately 40 companies have carried out buyback programmes totaling more than $400 million in liquidity for employees.

Here's a quick rundown of a few ESOP liquidity programmes that were announced in 2021.

Flipkart, a Walmart-owned ecommerce platform, has amassed Rs 17,000 crore Employee Stock Ownership Plan (Esop) pool, propelling it to the top of the list of Indian technology companies that have granted stock options to employees.

Following their initial public offerings on Indian exchanges earlier this year, consumer tech companies Zomato and Nykaa delivered a bonanza for investors and employees. They've had the industry's largest Esop pools.

UpGrad, the edtech unicorn, has raised its employee stock option programme (ESOP) pool by 28%, from 17,25,810 to 22,25,810 options (UPGRAD Education-Employee Stock Option (New) Scheme, 2015). The new ESOP pool will now be worth INR 427 Cr, up from INR 331 Cr previously, representing a 29 percent increase in value.

According to upGrad's July filing, each equity share of the edtech unicorn was priced at INR 1,919.62. (including premium).

Unacademy issued $40 million in stock options to teachers on its platform earlier this year.

Following their $255 million fundraise in June 2021, Urban Company announced their fourth liquidity programme, which represents a 30 percent increase over their June valuation.

Spinny, a recently-minted unicorn, announced a $12 million ESOP buyback programme for current and former employees following a $280 million funding round.

RenewBuy announced their second employee ESOP buyback programme worth $1.8 million following their $55 million funding in August.

Meesho, a social commerce platform, had announced a new ESOP programme called MeeSOP, in which employees, regardless of tenure or seniority, can convert up to 25% of their yearly CTC into ESOPs.

For all eligible current and former employees with vested stocks, Meesho, a social commerce platform is undertaking a $5.5 million ESOP buyback. The platform had also raised $570 million in a funding round led by B Capital Group and Fidelity Management. Moreover, it repurchased employee stock ownership plans worth $6 million in two previous rounds with across-the-board participation.

According to recent regulatory filings with the Registrar of Companies, Paytm recently offered new employee stock ownership plans (Esops) to 166 former and present workers, which were then converted into company shares. The news came ahead of the Noida-based firm's scheduled initial public offering (IPO), which is set to took place in November.Over a million Esops were issued in total, largely to senior staff members. These converted Esops are valued at about Rs 182 crore, based on Paytm's latest valuation of $16 billion (around Rs 1.2 lakh crore).

Whatfix, a B2B digital platform solution provider has implemented an employee stock ownership plan (ESOP) buyback of $4.3 million for its employees. Whatfix is a software-as-a-service platform that offers in-app guidance and performance support for web applications and software products.

Whatfix assists businesses in developing interactive walkthroughs that appear within web applications. According to the company, Whatfix is giving employees the option to liquidate up to 35 percent of their vested ESOPs. This is the company's first buyback, and more than 80% of the eligible 175 employees have chosen not to liquidate their vested shares.

Foodtech major Swiggy also announced that it will buy stock worth $35-40 million held by their employees in 2021 and 2022.

Temasek Holdings of Singapore and the World Bank's arm IFC have invested an additional Rs 220 crore (USD 29.5 million) in leading online education platform Upgrad, which focuses on upskilling/reskilling professionals, by purchasing out employees' equity holdings through Esops.

CRED's total ESOP buyback in 2021 was worth around Rs 145 crore ($19.3 million), according to the company.

Over the last few years, ESOP allocation, expansion, and buyback in Indian startups have increased, indicating that the ecosystem has progressed. The year has also been good for startups in terms of fundraising and adding more unicorns to their list. 15 startups, including Spinny, CRED, Urban Company, BharatPe, Meesho, Moglix, UpGrad, and ShareChat, among the 43 that became unicorns in 2021, provided ESOP liquidity programmes this year.