Ahead of its much-awaited $500 million initial public offering (IPO), Fintech SaaS startup Perfios has developed a new employee stock option plan (ESOP) for its staff called “Perfios ESOP 2025-A.” At an extraordinary general meeting on February 5, the company’s board approved the plan to launch the new ESOP program. The company will offer 2.05 lakh stock options to its employees via the Perfios ESOP 2025-A program, according to regulatory records that are available at the Registrar of Companies. The development was initially reported by Entrackr. According to the report, the recently added stock options are valued at over INR 645 Cr, or almost $76 million.
What is the New ESOP Plan and Company’s Preparation Before its IPO?
Under the new plan, after the four-year vesting period is up, Perfios will issue, distribute, and allot an equal number of equity shares to its employees. Perfios, which was founded in 2008 by VR Govindarajan and Debasish Chakraborty, offers financial institutions software solutions for a variety of purposes, including credit decisions, analytics, onboarding automation, and due diligence. After raising $80 million from Teachers’ Venture Growth (TVG), the late-stage investment division of the Ontario Teachers’ Pension Plan, a Canadian pension fund, Perfios became a unicorn in March 2024. The most recent development coincides with rumours that Perfios intended to raise $500 million at a $2 billion valuation through its initial public offering (IPO). There have been rumours that the fintech SaaS startup was considering going public in 2024. In November 2023, Perfios named Anu Mathew as chief people officer (CPO) and Sumit Nigam as chief technology officer (CTO) in anticipation of a possible initial public offering (IPO).
Perfios’ Recent Developments and Financial Outlook
According to reports, Perfios was in negotiations to enter the US market in October 2024 as part of its development strategies to spur growth. For an undisclosed sum, it purchased CustomerXPs, the parent company of banking fraud management startup Clari5, earlier this month. From INR 7.8 Cr in the previous fiscal year to INR 71.7 Cr in the fiscal year 2023-24 (FY24), Perfios’ consolidated net profit soared by 819%. From INR 406.8 Cr in FY23 to INR 557.8 Cr in the year under review, revenue from operations increased 37.1%.
ESOP Getting Popular Among New-Age Tech Companies
As an attraction tactic and a means of generating income, a number of cutting-edge software companies, like Razorpay, Flipkart, Swiggy, Nykaa, and Delhivery, have offered their staff ESOPs in recent years. In 2024, 16 cutting-edge tech businesses took part in ESOP buybacks, creating $148 million in wealth for their employees, in addition to Indian startups issuing ESOPs.
90,500 equity shares have been distributed by omnichannel cosmetics retailer Nykaa as part of its employee stock option plan (ESOP). Nykaa stated in an exchange filing that the equity shares are allocated following the execution of vested stock options by employees under the company’s ESOP Plan. The filing indicated that the allotted equity shares shall rank equally with the existing equity shares of the company in all respects.
Financial Outlook of Nykaa
Nykaa‘s consolidated net profit increased by 51% to INR 26.4 crore in the third quarter of the financial year 2024-25 (Q3 FY25), up from INR 17.5 crore in the same time last year, driven by robust development in the beauty and fashion sectors. The corporation disclosed its financial results for the quarter ending in December earlier this month. On a quarter-on-quarter basis, net profit increased by 104% from INR 12.97 crore.
Following its impressive performance in the reviewed quarter, broking firm JM Financial maintained its ‘BUY’ recommendation on the stock, setting a target price (TP) of INR 240, due to the company’s capacity to achieve substantial growth in a sluggish market landscape. In the September-December quarter, the company’s operational revenue increased by 26.74% to INR 2,267.2 Cr from INR 1,788.8 Cr during the same time the previous year.
It rose sequentially by 20.93% from INR 1,874.7 crore. The company run by Falguni Nayar stated in an investor presentation that its consolidated gross merchandise value (GMV) in Q3 FY25 was INR 4,527.9 Cr, a 25% increase over INR 3,617.9 Cr in the same period last year. In Q3 FY25, sales from Nykaa’s beauty and personal care (BPC) segment surged 27% year-over-year to INR 2,060.01 crore, while Nykaa Fashion persisted as a loss-incurring division during the period. Nykaa Fashion successfully reduced its loss by 12.3% year-over-year to INR 25.41 crore.
Current ESOP Scenario in India
According to a 2024 survey of 160 companies, 78% of them offered employee stock option plans (ESOPs) to their staff, a considerable increase from 59% in 2021. This indicates that ESOPs are becoming more and more popular among startup owners. More firms are now offering ESOPs to all employees, not only senior management, according to a survey done by Saison Capital, XA Network, and Carta. Compared to one in four in 2021, one in three firms now provides these plans to all employees.
Furthermore, the median ESOP pool size grew from 9% in 2021 to 12.6% in 2024, and 90% of founders now talk about ESOPs with candidates during interviews or job offers, up from 75% in 2021. Additionally, the reasons for providing ESOPs have changed; in 2024, 40% of founders cited cost reductions, up from 28% in 2021.
The founders cited the necessity to retain people as the second most important reason for putting these plans into action, behind creating a sense of ownership and company culture. Even with this increase, fewer than 30% of founders still fully understand the complexity of ESOPs, a percentage that hasn’t changed since 2021.
Under many employee stock option plan (ESOP) strategies, online travel aggregator (OTA) ixigo has distributed 10.58 lakh equity shares to qualified employees. The travel tech startup stated in a filing with the markets that the shares were offered at a premium of INR 0.25 per share and an exercise price of INR 1.25 per share.
The company announced that 10,58,143 fully paid-up equity shares with a face value of INR 1/- each have been allotted to the option holders under the Le Travenues Technology – Employee Stock Option Scheme 2013,…, ESOS 2016,…, 2020,…, 2021…, according to the company’s statement. The board of directors of the company has approved the allocation. Since the allocation, the travel tech platform’s entire paid-up share capital has increased from INR 38.87 Cr to INR 38.97 Cr.
Step is Taken to Encourage and Retain
ixigo added that the purpose of the ESOPs was to “motivate and retain” bright workers and give them “additional deferred rewards.” This comes after the business distributed over 4.6 lakh equity shares under different ESOP plans in December 2024. Before this, in November, the OTA granted 17.57 lakh more stock options under the ESOP 2024 scheme, increasing the size of its ESOP pool.
Financial Outlook of ixigo
The announcement coincided with the OTA’s financial results for the third quarter (Q3) of the fiscal year 2024–2025 (FY25). Ixigo’s consolidated net profit fell by half to INR 15.54 Cr in the quarter under review from INR 30.65 Cr in Q3 FY24 due to increased tax charges. In the meantime, operating revenue increased 42% to INR 241.76 Cr in Q3 FY25 from INR 170.55 Cr in Q3 FY24. In terms of operations, Ixigo’s gross transaction volume (GTV) increased by 48% from INR 2,718.3 Cr in Q3 FY24 to INR 4,036.3 Cr during the quarter.
ESOP is Getting Popular Among Startups
According to a 2024 survey of 160 companies, 78% of them offered employee stock option plans (ESOPs) to their staff, a considerable increase from 59% in 2021. This indicates that ESOPs are becoming more and more popular among startup owners. More firms are now offering ESOPs to all employees, not only senior management, according to a survey done by Saison Capital, XA Network, and Carta. Compared to one in four in 2021, one in three firms now provides these plans to all employees.
Furthermore, the median ESOP pool size grew from 9% in 2021 to 12.6% in 2024, and 90% of founders now talk about ESOPs with candidates during interviews or job offers, up from 75% in 2021. Additionally, the reasons for providing ESOPs have changed; in 2024, 40% of founders cited cost reductions, up from 28% in 2021.
The founders cited the necessity to retain people as the second most important reason for putting these plans into action, behind creating a sense of ownership and company culture. Even with this increase, fewer than 30% of founders still fully understand the complexity of ESOPs, a percentage that hasn’t changed since 2021.
2.61 Cr equity shares have been distributed by listed foodtech giant Swiggy through its different employee stock option (ESOP) plans. Swiggy announced in an exchange filing on January 25 that the nominating and compensation committee had authorised the distribution of 2,61,93,411 equity shares of the firm in response to qualified workers exercising their stock options under the Swiggy ESOP Plans 2015 and 2021. Swiggy’s paid-up equity share capital rose from INR 2.23 Cr to INR 2.26 Cr after this allocation. The newly allotted shares are worth INR 1175.69 Cr, with Swiggy’s shares closing 2.7% lower on the BSE at INR 448.85 each on the last trading session of January 25.
Swiggy’s ESOPs
Swiggy launched its sixth employee stock option plan (ESOP) liquidity program last year, valued at $65 million (about INR 543.5 crore), prior to its offering. In June 2018, Swiggy introduced the first ESOP program. In 2021, it then announced two ESOP liquidity programs valued between $35 and $40 million. In 2022 and 2023, the two tranches under this were finished. Recently, the firm managed by Sriharsha Majety released a new app called “SNACC,” which aims to provide a 15-minute food delivery service in specific areas of Bengaluru. Zomato then introduced Bistro, a 10-minute meal delivery service.
ESOP is Getting Popular Among Startups
According to a 2024 survey of 160 companies, 78% of them offered employee stock option plans (ESOPs) to their staff, a considerable increase from 59% in 2021. This indicates that ESOPs are becoming more and more popular among startup owners. More firms are now offering ESOPs to all employees, not only senior management, according to a survey done by Saison Capital, XA Network, and Carta. Compared to one in four in 2021, one in three firms now provides these plans to all employees.
Furthermore, the median ESOP pool size grew from 9% in 2021 to 12.6% in 2024, and 90% of founders now talk about ESOPs with candidates during interviews or job offers, up from 75% in 2021. Additionally, the reasons for providing ESOPs have changed; in 2024, 40% of founders cited cost reductions, up from 28% in 2021.
The founders cited the necessity to retain people as the second most important reason for putting these plans into action, behind creating a sense of ownership and company culture. Even with this increase, fewer than 30% of founders still fully understand the complexity of ESOPs, a percentage that hasn’t changed since 2021.
This article has been contributed by Manish Panwar, Business Head at Xumane.
“ESOPs are about more than just shares—they’re about building something meaningful together. When employees become part-owners, they don’t just work for the company; they work with it, driving its success as if it were their own.”
– Manish Panwar
In recent years, Employee Stock Option Plans (ESOPs) have emerged as one of the most innovative ways for startups to attract and retain top talent. As these plans continue to grow in popularity, they have proven to be an effective strategy for both companies and employees. The wealth that individuals have accumulated through their ESOPs is nothing short of inspiring, with some even turning into overnight millionaires when their companies hit the jackpot.
So, why are ESOPs so appealing, and why are they here to stay?
The Startup Dilemma: Talent vs. Cash Flow
As a startup founder, the struggle to attract skilled employees often comes down to one thing: money. The lack of cash flow can make it impossible to offer competitive salaries, but do you need skilled employees? Absolutely. Can you afford to pay them what they deserve? Probably not—at least not yet.
This is where ESOPs come into play.
At their core, ESOPs are modern-day compensation tools that allow employees to become partial owners of the company by granting them stock options. These options give employees the right to buy shares of the company at a predetermined price, usually well below market value, with the hope that the company’s value will grow significantly over time.
Source: Siason Capital
How ESOPs Work: A Quick Breakdown
Granting of Options: Startups grant stock options to employees, specifying the number of shares they can purchase in the future at a predetermined price.
Vesting Period: These options come with a vesting period—usually 3 to 4 years—during which employees must stay with the company before they earn the right to exercise their options. This ensures employees are committed for the long term.
Exercise Period: Once the vesting period is over, employees can “exercise” their options, purchasing the shares at the agreed-upon price. This exercise period often comes with a defined window of time.
Liquidity Event: The true benefit of ESOPs is realized during a liquidity event, such as an IPO or acquisition. When these events occur, employees can sell their shares and cash in on the appreciation.
The Power of Belief: Why ESOPs Work
So, how is the value of shares decided? And how can employees ensure that they will see returns from their ESOPs?
The answer lies in belief.
Employees who accept ESOPs are, in essence, betting on the future success of the company. They believe that the company will grow and become profitable, and as it does, they will enjoy the financial rewards that come with ownership. This belief is what drives employee engagement, productivity, and loyalty. When you own part of the company, you have skin in the game. Your success is tied to the company’s success. It’s no longer just about working for a paycheck—it’s about working to build something bigger than yourself.
The Allure of ESOPs
Consider headlines like, “500 Employees to Turn ‘Crorepatis’ With ₹9,000 Crore ESOP Plan.” That’s the power of ESOPs.
It’s often said that extraordinary wealth is only achievable through owning a business. Many people believe that simply being an employee won’t get them there. But ESOPs bridge that gap. By offering employees the chance to own a stake in the company, startups offer their employees the opportunity to build wealth just like founders do.
Startups can implement ESOPs by following the legal framework outlined under Section 62(1)(b) of the Companies Act, 2013 for private companies, or SEBI regulations for listed companies.
To implement an ESOP plan, founders and HR teams must:
Define eligibility criteria
Set exercise prices
Create vesting schedules
Ensure compliance with applicable laws
The Tax Implications: A Key Consideration
Taxation of ESOPs can be tricky for both startups and employees. Let’s break it down:
a) For Employees
Exercise of Options: When employees exercise their options, the difference between the fair market value of the shares and the exercise price is taxed as perquisite income.
Sale of Shares:
If shares are sold within one year of acquisition, the profit is taxed as Short-Term Capital Gains (STCG) at 15%.
If shares are held for longer than one year, they are taxed at Long-Term Capital Gains (LTCG), which is currently 12.5% on gains over ₹1.25 lakh.
b) For Startups
No tax deduction on ESOP grant: Companies cannot claim a tax deduction when they grant ESOPs.
Tax deduction on ESOP expense: Companies can, however, claim a tax deduction for the fair market value of the shares allotted to employees as an expense, provided they meet the conditions set by the law.
c) Legal Documents Required for ESOPs
For startups to set up ESOPs, the following documents are essential:
Stock Option Agreement: Outlines the terms of the options granted to employees, including exercise price and vesting schedule.
Vesting Schedule: A detailed timeline specifying when employees can exercise their options.
ESOP Plan Rules: A comprehensive guide defining eligibility, pricing, and operational aspects of the ESOP plan.
Board Resolutions: Formal approval by the board of directors to grant stock options.
Employee Communication: Clear documents explaining the ESOP plan and its benefits to employees.
What Happens When the Company Goes Public?
If the company goes public, ESOPs are converted into publicly traded shares, giving employees the option to sell these shares on the stock market. However, for this to happen, the employee must have already vested their options and exercised them.
Conclusion: A Tool for Growth, Loyalty, and Wealth
To sum it all up, ESOPs are not just a tool for attracting top talent—they’re a vehicle for wealth creation, fostering long-term employee commitment, and aligning the workforce with the company’s vision for growth. When employees have a stake in the company, their investment in its success is far greater than any cash bonus or salary increase could achieve. ESOPs offer a unique opportunity to build something meaningful, together.
With the distribution of approximately 1.2 Cr in stock options to qualified employees, foodtech giant Zomato has increased the size of its employee stock option plan (ESOP) pool. The company, managed by Deepinder Goyal, announced in an exchange statement on October 2 that its board has approved the issuance of 1,19,97,768 stock options under various ESOP schemes. 116 stock options under the Foodie Bay ESOP 2014 plan and 1.19 Cr stock options under the Zomato ESOP 2021 scheme have been given by the meal delivery and fast commerce behemoth. Under its ESOP schemes, each stock option is convertible into a single fully paid-up equity share with a face value of INR 1 each. These options can be exercised within 10 years of the options’ vesting date or 12 years of Zomato’s public listing date, whichever comes first. According to the filing, lock-in will not apply to the equity shares that will be distributed following the exercise of the stock options. According to the stock’s most recent opening price, the freshly allotted shares are worth a total of INR 328.91 Cr.
The Move to Retain Top Executives and Allure Fresh Talent
Zomato has floated new ESOPs many times this year in an effort to draw in talent from international startups and to retain top executives. Zomato distributed about 35.17 lakh stock shares in August. The foodtech giant had previously announced that it had won approval from shareholders to adopt and execute Zomato ESOP 2024, a new employee stock option plan that would award 18.26 Cr in stock options to employees. The changes coincide with Zomato’s steady increase in profit margins due to the company’s robust business growth, especially in its rapid commerce vertical, Blinkit. While Zomato’s operating revenue increased 74% year over year (YoY) to INR 4,206 Cr in Q1 FY25, the company’s consolidated net profit increased multifold year over year (YoY) to INR 253 Cr. By concentrating on going-out business, the company hopes to further stabilise its revenue.
Adding New Feature for Further Expansion
In addition to launching the “Book Now, Sell Anytime” functionality for tickets purchased for any live event on the Zomato app, Zomato has also acquired Paytm’s movie and events ticketing businesses. Additionally, Zomato has been dropping unsuccessful products and introducing new features to attract users. In order to facilitate the control of food expenses for corporations and their registered personnel, Zomato recently launched “Zomato for Enterprise” (ZFE). But the foodtech major’s tax problems are getting worse. The company was hit with a new goods and services tax (GST) demand and penalty order for more than INR 17.70 crore by West Bengal GST officials last month. Authorities in West Bengal and Tamil Nadu fined Zomato INR 4.59 Cr in August for GST violations.
By offering 2.03 Lakh (2,03,137) stock options under its ESOP Plan 2019, Paytm has increased the scope of its employee stock option plan (ESOP). The company stated in an exchange filing on January 17 that it would like to notify the exchange that 2,03,137 stock options have been granted to eligible employees under the One 97 Employees Stock Option Scheme 2019 (“ESOP 2019”) by the Nomination and Remuneration Committee of the Board of the Company (“Committee”) at its meeting on January 17, 2025.
The business added that each stock option has the potential to be converted into a single, fully paid-up equity share, each of which has a face value of INR 1. The projected total value of these stock options is INR 18.27 Cr, based on Paytm’s stock closing price of INR 899.65 a share on Friday. Paytm reported the cancellation or lapse of 17,68,469 stock options in addition to the fresh ones. In accordance with the terms and conditions of the ESOP 2019 plan, this includes the cancellation of 44,848 stock options.
Various ESOP Pool Launched by Paytm
Paytm distributed 1.48 lakh equity shares to qualified workers earlier this month through a number of employee stock option plan (ESOP) programs. In recent months, Paytm has witnessed a number of ESOP-related changes. Under its ESOP 2019 and ESOP 2008 schemes, the fintech giant distributed 2.44 lakh equity shares to qualified employees in December 2024. In November 2024, it additionally reserved 4 lakh equity shares under ESOP 2019 for its qualified employees. In addition, eight Paytm representatives reached a settlement with the market watchdog. These individuals settled the matter by paying a cumulative sum of INR 3.32 Cr, without acknowledging or denying the findings of SEBI.
Paytm’s Current Financial Outlook
In terms of finances, the fintech giant made money in the second quarter of FY25, reporting a net profit of INR 930 Cr as opposed to a loss of INR 292 Cr in the same period last year. Profitability resulted from the business selling Paytm Insider, its ticketing division, to Zomato for INR 2,048 Cr during the September quarter. For INR 2,364 Cr ($279.19 Mn) in the December quarter, Paytm sold SoftBank’s Vision Fund 2 its stock acquisition rights (SARs) in the Japanese digital payments company PayPay Corporation. On January 20, the business is scheduled to release its Q3 FY25 financial results.
For $279.2 million, the Singapore-based affiliate of Paytm recently sold Softbank Vision Fund 2 all of its stock acquisition rights in Japan’s PayPay. As Paytm strives to reduce operations to concentrate on its main business in India, the sale is anticipated to enhance the company’s consolidated cash balance.
The awarding of 45,663 stock options under the employee stock option plan (ESOP) has been approved by Honasa Consumer Ltd., the company that owns modern FMCG brands like Mamaearth and The Derma Co. According to its BSE filing, the company’s nominating and compensation committee has authorised “a total grant of 45,663 stock options under Honasa Consumer Limited Employee Stock Options Plan—2018 (“ESOP—2018″) to the eligible employees.” The new stock options were worth INR 1.12 Cr based on the stock’s closing price on 17 January. The face value of each equity share is INR 10, and the exercise price is also fixed at INR 10. According to Honasa’s petition, an employee may use their vested options during their employment or within ninety days after their final day of employment. The allocation of 546,601 stock options under the same ESOP scheme was approved by the firm in September.
Honasa Roped in Lokesh Chhaparwal as Senior Vice President
Honasa hired Lokesh Chhaparwal as senior vice president of technology and engineering earlier this month, which coincided with the recent ESOP expansion. With an emphasis on using cutting-edge technological solutions to improve operations, Chhaparwal is expected to spearhead the organisation’s technological strategy. According to the corporation, his duties would include overseeing digital platforms, using SAP systems to optimise supply chain operations, and developing marketing technology to deliver individualised customer experiences. He will also supervise internal security protocols to protect information and guarantee operational effectiveness.
Chhaparwal, a former AVP and Head of Engineering at Snapdeal, provides more than 13 years of experience in data strategy and product engineering. He will work out of Honasa’s Gurgaon office and support the company’s initiatives to use technology to build new products and engage customers.
Further Developments at Honasa
In terms of finances, Honasa reported a consolidated net loss of INR 18.6 Cr for the September 2024 (Q2 2025) quarter, compared to a net profit of INR 29.4 Cr for the previous year and INR 40.3 Cr for the June quarter prior. Honasa’s top line for D2C brands suffered as well, as operating revenue dropped by almost 7% to INR 461.8 Cr in the reviewed quarter from INR 496.1 Cr in Q2 FY24. Mamaearth, The Derma Co., Aqualogica, Ayuga, BBlunt, and Dr. Sheth’s are among the six beauty and personal care brands that make up Honasa’s product line. The company was founded in 2016 by Varun and Ghazal Alagh, a husband and wife team.
In the midst of media stories about credit backlogs and unsold stock with distributors, Honasa had provided clarification on the extent of its remaining inventory. The company stated that, in contrast to the All India Consumer Products Distributors Federation’s claimed amount of INR 300 crore of near-expiry inventory, its distribution value chain contained a total inventory of INR 40.69 crore.
More than 56,000 equity shares have been distributed to eligible employees of Nykaa, a significant player in the beauty and fashion industry, through a variety of employee stock option plan (ESOP) schemes. According to the company’s BSE filing, 56,750 equity shares have been approved by the nomination and compensation committee under the company’s employee stock option schemes. These equity shares are granted in accordance with the employees’ exercise of vested stock options under the company’s employee stock option schemes. On January 20, Nykaa’s shares were trading on the BSE intraday at INR 166.60, down 3.44%. Later in the day, though, the stock recovered some of its losses, and by 1:54 PM, it was trading at INR 170.95. This comes after broking firm InCred Equities began rating parent company FSN E-Commerce Ventures Ltd., a significant player in the beauty and fashion e-commerce space, as “reduce.”
Nykaa Aiming Projecting Strong Growth in FY2025
According to Nykaa‘s Q3 FY25 performance forecast, consolidated net revenue growth was expected to surpass the mid-twenties. Nykaa’s consolidated net profit increased by 66.3% to INR 12.97 Cr from INR 7.8 Cr in the same period last year, thanks to robust development in the beauty and personal care (BPC) vertical.
Recent Happenings at Nykaa
According to Nykaa’s Q3 FY25 performance forecast, consolidated net revenue growth was expected to surpass the mid-twenties. Nykaa’s consolidated net profit increased by 66.3% to INR 12.97 Cr from INR 7.8 Cr in the same period last year, thanks to robust development in the beauty and personal care (BPC) vertical. For a while now, Nykaa has seen a variety of activities. For example, Nihir Parikh, the CEO of Nykaa Fashion, resigned from the company in December as part of a significant top-level reorganisation.
In a similar vein, the business said in November that it will aim for a delivery window of 30 minutes to 2 hours for a few in-demand beauty products, rather than concentrating on 10-minute deliveries. Additionally, it successfully acquired the majority of Earth Rhythm, a direct-to-consumer skincare and cosmetics brand. The company gave its employees 1.80 lakh equity shares under the Employee Stock Option Plan (ESOP) that same month.
India’s Present ESOP Situation
According to a 2024 survey of 160 companies, 78% of them offered employee stock option plans (ESOPs) to their staff, a considerable increase from 59% in 2021. This indicates that ESOPs are becoming more and more popular among startup owners. More firms are now offering ESOPs to all employees, not only senior management, according to a survey done by Saison Capital, XA Network, and Carta. Compared to one in four in 2021, one in three firms now provides these plans to all employees.
Furthermore, the median ESOP pool size grew from 9% in 2021 to 12.6% in 2024, and 90% of founders now talk about ESOPs with candidates during interviews or job offers, up from 75% in 2021. Additionally, the reasons for providing ESOPs have changed; in 2024, 40% of founders cited cost reductions, up from 28% in 2021.
The founders cited the necessity to retain people as the second most important reason for putting these plans into action, behind creating a sense of ownership and company culture. Even with this increase, fewer than 30% of founders still fully understand the complexity of ESOPs, a percentage that hasn’t changed since 2021.
With a $35 million corpus, equity management platform Hissa has introduced Hissa Fund I to give the Indian employment stock option plan (ESOP) market liquidity. Established as a SEBI-registered Category II Alternative Investment Fund, the company would seek to invest in 15 to 20 companies in the development stage and collaborate closely with the founders to offer liquidity to support talent retention and business expansion plans. The fund’s target ticket size for each company is between INR 8 crore and INR 10 crore. Employee stock ownership plans, or ESOPs, provide staff members a stake in the business through share ownership. These options, however, are only exercisable upon an IPO or acquisition.
Reason Behind the Move
Businesses are taking longer to require public assistance as more and more capital enters the private markets, claims Satish Mugulavalli, a partner at Hissa Fund. Employees now own illiquid firm shares for extended periods of time as a result of this. This deficit will be addressed by the new fund. Hissa thought it was a little unfair that those who are assisting in the development of these businesses are unable to reap the value created due to a lack of liquidity. As a result, the business introduced a liquidity product that allows founders to supply periodic liquidity without having to wait for an exit. “Business owners are seeing some sort of liquidity happening in the middle,” Mugulavalli told a media outlet, “but the big liquidity will happen at the end (through an IPO or an acquisition).” Founders, high-net-worth individuals (HNIs), and family offices that have previously made investments in startups make up the majority of the fund’s limited partners (LPs). But according to Mugulavalli, it was too soon to reveal these LPs’ names.
Following the FootSteps of VC Fund
Like any other VC fund, Hissa will have stock selection criteria. It has valuation requirements that must be fulfilled and is aggressively seeking Series B companies. The startup’s offer will be based on the company’s most recent valuation, but like all financial assets, the asset may be valued at a premium or a discount, depending on the business. It can cost more if the business is doing really well. However, that is a choice that is made at that particular moment. ‘However, you’ll be anchored by the company’s most recent major funding round”, Mugulavalli stated. By the conclusion of the current fiscal year or the first quarter of FY26, the fund intends to fully distribute the entire amount.
The fund has several choices to exit a business because ESOPs can only be activated in the event of an acquisition or if the company files to go public. Given that it does not own a sizable stake in the business, the fund may retain the shares until the firm goes public or is bought, or it may sell them whenever a major fund makes an investment in the business.
Nitin Konde
