ESOP is the rising star of the Indian startup ecosystem, founders at TechSparks 2021

The Indian startup ecosystem is growing, bringing new talent to the market as agile startups require creative problem solvers. For startup founders, this has led to providing incentives to retain good talent in a highly competitive space.

At YourStory's flagship startup-tech conference, TechSparks 2021, leaders from four startups came together for a panel discussion on the topic: 'Fables Of ESOP - Startup’s Roundtable To Attract And Retain Talent' to shed light on how companies should structure appropriate incentive plans for roping in the right talent.

ESOP: Enterprise stock option or employee stock option?

On being asked why wealth creation for employees is an important aspect for the founders, Ruchi Kalra, CFO, Ofbusiness, said, “Wealth creation cannot happen unless every person in an organisation puts in their best efforts. Employee being a part of the wealth creation process is a part of our fundamental philosophy.”

Employees sharing their part of the effort, in turn, leads to the creation of wealth for the entire organisation. Besides, it is again a joyful experience for the founders as providing liquidity to the employees is almost like an asset they would love to hold on to.

Ruchi explained that the situation especially becomes true for the youngsters, who want to invest their liquidity in a property, or maybe get married, or spend it for some other family needs. “It’s almost becoming an integral part of their lives which makes more sense than mere commercial benefit. That’s the moment of joy or pride I feel when we hear people saying how the money benefitted them,” Ruchi said.

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Is ESOP the new normal in the Indian startup ecosystem?

Apart from Ruchi, the panel comprised names like Chaitanya Ramalingegowda, Director and Co-founder of Wakefit, Shantanu Deshpande, Founder, Bombay Shaving Company, and Lakshman Gupta Kanamarlapudi, COO, Qapita.

A majority of the panel members run their employee liquidity programs with ESOP.

This year saw startups in India announcing programmes worth 300 million dollars.

So, how do the founders perceive these liquidating events as a mode of retaining talent? Hosting the session, Manasi Phadnis, Senior Anchor, YourStory, asked this question to the panelists.

Starting first, Ruchi answered that trust-building is the founding principle of liquidation, with the fact that ESOP is not just a piece of paper.

“The fact that this is an asset that would grow over the years, and is not a myth makes it acceptable to the employees,” she says. She also feels that the process of acquiring it needs to be clarified, filled with open conversations and seamless processes. So, founders need to be actively involved to make it impeccably perfect while smoothing the process. “For me, liquidation and trust go hand-in-hand,” she concluded.

Shantanu agreed with Ruchi. “Employees should have a clear understanding of how much they are liquidating, and founders should provide clear visibility on numbers, especially for the younger employees,” he said. The founders should have proper knowledge of the liquidation process before they create transparency.

Here, Chaitanya also stressed on the importance of education, tools, and transparency meant for the employees. Regular educational sessions from the external experts, founder, CFO, and finance team have worked wonders for the freshers.

“The tools that we have used have measured all the trajectories of liquidation which the employees would be able to access even if they have left the company. It’s like the entire burden of the paperwork is taken by the company. Transparency involves honest conversations that are an ongoing process,” he said.

However, this also triggers the thought of whether employees are willing to take less cash in return for ESOPs? Here, Lakshman says employees still negotiate on cash but also don’t mind getting more ESOPs instead of cash. “However, we are hopeful that trends will change once people start attending the liquidity events and get the understanding of real equities”, he says.

ESOPs might be complicated but startup founders are optimistic about their adoption.

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