ESOP cashouts in Indian start-ups fall 62% in 2023
In 2023, Indian start-ups experienced a significant drop in employee stock option (ESOP) cashout events, with only 16 occurrences compared to 42 the previous year, according to data from equity management platform Qapita. This three-year low follows a pandemic-induced funding boom in 2021 that led to 43 ESOP cashouts. However, a $700-million cashout by Walmart-owned Flipkart increased the total value of ESOP cashouts in the Indian start-up ecosystem by 178% YoY to $812 million.
Flipkart's $700 million cashout skews total ESOP value
Excluding Flipkart's massive $700-million ESOP cashout, the total value of ESOP liquidity events in 2023 amounted to just $112 million, a stark contrast to the $292 million in 2022 and $423 million in 2021. Flipkart's $700-million ESOP buyback was part of its strategy to fully separate ownership of payments and financial services unicorn PhonePe. The move also aimed at attracting and retaining talent during a time when many start-ups faced layoffs due to funding winter.
Top ESOP cashouts in 2023 and future role of ESOPs
Following Flipkart, the largest ESOP cashouts in 2023 were provided by Swiggy ($50 million), Tredence ($30 million), Pefios ($18.5 million), and Porter ($6.25 million). As start-ups reduce cash burn amid funding winter, industry insiders believe the importance of ESOPs as part of overall compensation will only grow. Harshil Mathur, founder and CEO of fintech unicorn Razorpay, tells Moneycontrol, "When you join a start-up as an employee, you join for a significant multiplier of wealth and that multiplier is the ESOP."
ESOPs creating wealth for start-up employees
Since 2021, ESOP cashouts have generated $1.46 billion in wealth for start-up employees, according to Qapita data. Successful initial public offerings (IPOs) like Zomato, Paytm, Delhivery, and frequent ESOP liquidity events by smaller start-ups have helped change the narrative. Mathur said, "We have seen people at our company create life-changing wealth through ESOPs. They would have never been able to do that with salary increases even over a decade."
