Thanks for your participation in our session on ‘Decoding Employee Ownership for Start-ups’!
ESOPs and stock grants is a great tool to incentivize key stakeholders including employees. It helps motivate the team. It helps conserve capital. It reduces short-term cash outflows. Increases your run rate and ability to fuel your growth engine.
That is why we brought in two experts from the domain. Anirudh Rastogi (Founder, Ikigai Law) and Avinash Agrawal (Co-founder, VenEx).
You can view the whole recording from the link below. But here is the TL;DR version of the session.
What are ESOPs?
- Terms to be aware of: Grant Date, Cliff Period, Vesting Period, Exercise Date.
Challenges around ESOPs in Indian Context?
- ESOPs are limited to employees only and cannot be offered to advisors and service providers.
- Very limited liquidity options for employees to create short-term benefits for themselves. Though startups have started offering ESOP buyback plans.
- The current regime requires an employee to exercise her vested ESOPs upon leaving the company; otherwise, ESOPs will lapse. This creates a tax burden for an employee well ahead of selling their shares.
- Redbus case study, wherein most of the employees did not get an exit opportunity despite M&A providing an exit to the founders.
What are the alternatives to ESOPs?
- Phantom Stocks (also known as ‘Shadow Stocks’):
Instead of real equity shares, employees receive cash payouts linked to the company's equity valuation (and gains thereof) as per a vesting schedule or at the end of a pre-determined length of time.
Could be offered to a wide range of stakeholders including employees, advisors, service providers, etc.
- VenEx:
VenEx’s unique model goes a step further. It eliminates the equity valuation aspect/complexity from Phantom Stocks and links the upside/rewards of participating employees, service providers and channel partners to the Employer Company’s easily measurable financial milestones like revenues and funding.
The Employer Company defines the market value of the fixed & variable pay of each participant based on her profile, effort, performance and loyalty; the participant can invest a portion of it as Systematic Investments (of sweat) into her VenEx-powered Sweat Bonus™ account with the Company, which keeps building up with time and gives her a pre-defined ROI in the form of ‘cash payouts’ over the next few years based on the Company’s revenue milestones on a monthly/quarterly basis and fund-raise events.
The tax liability occurs no sooner than the time of actual payouts.
The model allows the Company to conserve capital in the short term and accelerate growth at the same time, while offering significantly more tangible, sellable and trust-building upside to its internal and external teams & partners, without having to dilute equity.
We are excited to bring you such interactions and partnerships. We will continue on that path. You can keep yourself updated by signing up to this blog.
If you have any feedback for us, please write back to us. We want to create value for our startup community and without your feedback, we won't be able to deliver on that promise.
Thanks, Saurabh and Tushar. It was great discussing employee ownership, ESOPs and VenEx with the audience
Thanks for your participation in our session on ‘Decoding Employee Ownership for Start-ups’!
ESOPs and stock grants is a great tool to incentivize key stakeholders including employees. It helps motivate the team. It helps conserve capital. It reduces short-term cash outflows. Increases your run rate and ability to fuel your growth engine.
That is why we brought in two experts from the domain. Anirudh Rastogi (Founder, Ikigai Law) and Avinash Agrawal (Co-founder, VenEx).
You can view the whole recording from the link below. But here is the TL;DR version of the session.
What are ESOPs?
- Terms to be aware of: Grant Date, Cliff Period, Vesting Period, Exercise Date.
Challenges around ESOPs in Indian Context?
- ESOPs are limited to employees only and cannot be offered to advisors and service providers.
- Very limited liquidity options for employees to create short-term benefits for themselves. Though startups have started offering ESOP buyback plans.
- The current regime requires an employee to exercise her vested ESOPs upon leaving the company; otherwise, ESOPs will lapse. This creates a tax burden for an employee well ahead of selling their shares.
- Redbus case study, wherein most of the employees did not get an exit opportunity despite M&A providing an exit to the founders.
What are the alternatives to ESOPs?
- Phantom Stocks (also known as ‘Shadow Stocks’):
Instead of real equity shares, employees receive cash payouts linked to the company's equity valuation (and gains thereof) as per a vesting schedule or at the end of a pre-determined length of time.
Could be offered to a wide range of stakeholders including employees, advisors, service providers, etc.
- VenEx:
VenEx’s unique model goes a step further. It eliminates the equity valuation aspect/complexity from Phantom Stocks and links the upside/rewards of participating employees, service providers and channel partners to the Employer Company’s easily measurable financial milestones like revenues and funding.
The Employer Company defines the market value of the fixed & variable pay of each participant based on her profile, effort, performance and loyalty; the participant can invest a portion of it as Systematic Investments (of sweat) into her VenEx-powered Sweat Bonus™ account with the Company, which keeps building up with time and gives her a pre-defined ROI in the form of ‘cash payouts’ over the next few years based on the Company’s revenue milestones on a monthly/quarterly basis and fund-raise events.
The tax liability occurs no sooner than the time of actual payouts.
The model allows the Company to conserve capital in the short term and accelerate growth at the same time, while offering significantly more tangible, sellable and trust-building upside to its internal and external teams & partners, without having to dilute equity.
We are excited to bring you such interactions and partnerships. We will continue on that path. You can keep yourself updated by signing up to this blog.
If you have any feedback for us, please write back to us. We want to create value for our startup community and without your feedback, we won't be able to deliver on that promise.
Session recording link: https://cloud-user-recordings-converted-prod.s3-ap-south-1.amazonaws.com/recordings/b5ebad90-7be9-11eb-b021-934ccccd436c/29232478-434f-45d9-9143-102d57766ca7/b5ebad90-7be9-11eb-b021-934ccccd436c_0001_470fb5ef.mp4