Identifying a gap in awareness and understanding of Employee Stock Options (ESOPs) among startups in India, LetsVenture is formulating a framework manual to help the cause.
While entrepreneurship is becoming more accessible to a wider set of founders, retaining quality talent remains a bottleneck for growth across companies.
The Bengaluru-based seed and early-stage investing platform seems to have the right idea of addressing this issue considering that more than 170,000 employees are working in the Indian startup ecosystem (data by Nasscom).
Additionally, taxation is a burden on ESOPs as there are two tax incidences - one at the time
of exercising the ESOP to buy shares at the exercise price, and two, a capital gains tax at the time of sale of such shares. Therefore, employees who wish to become shareholders are taxed while exercising.
At the Lets Ignite Summit on Saturday, Subrata Mitra of Accel Partners said,
“Great startups are built by visionary founders who also manage to enlist the services of top quality talent onto their ranks. Most such journeys could take decades to fruition. It is, therefore, critical for investors to realise this, and ensure that employees receive fair ownership and liquidity for their contribution to the success of a company.”
Mohandas Pai, who orchestrated the wealth-creating ESOP scheme at Infosys, says that there is a distinct lack of liquidity for employees who have invested five to eight years of their careers in Indian startups.
"A solution which allows them the benefit of a private sale to get liquidity in a transparent manner within the law is a big necessity today. The time has come for all decision makers to actively look at enabling such liquidity mechanisms for startup employees," he said.
The firm has recently released a consolidated campaign to better understand and adopt the best-case practices, and subsequently make the framework open-source to anyone who wishes to access it.
Shanti Mohan, Co-founder and CEO of LetsVenture, told YourStory that the team has witnessed immense support from founders, VCs, and influencers in the Indian ecosystem to address the lack of benchmarks and understanding on ESOPs in Indian startups.
Ganesh Nayak, Director of LetsVenture, said that the average age of the top 50 Indian startups by market cap is currently eight years, and these companies will largely remain private for at least another four to five years.
“Employees who have invested their careers into startups should not be made to wait 12-15 years to access their ESOPs as they would have important life events like marriage, buying a home, medical emergencies, etc.”
The framework has been supported by numerous executives and founder across startups including the likes of Swiggy, Zomato, PolicyBazaar, People Group, and UrbanClap.
Having A/B tested his career with engineering, sales, writing, and product management, Sampath now executes a callback function for a second stint with YourStory. Loves to eat, learn, write, travel, and take photographs. Often spotted consuming lethal doses of Dosa on the main roads of Bangalore. Tweet to him at @sampathptrvu.