India’s startup ecosystem has embraced a new form of wealth generation for its employees in recent years and it is ESOP buybacks. More than $1.7 billion has been distributed through these programs since January 2020 and it is clear that the startups are realizing the importance of rewarding talent in meaningful ways. The buybacks are basically reshaping workplace dynamics, morale and retention strategies.
The rise of ESOP buybacks reveals that startups are showing maturity in their approach to talent management. Startups earlier were seen as risky ventures and employees used to bet on the long-term success of their companies hoping that the equity would pay off someday. Today, more than 100 startups are participating in buyback programs and witnessing a changed narrative. Employees now don’t have to wait for an IPO or acquisition.
The striking part is that 80% of the $1.7 billion comes from just 20% of the startups. Companies like Flipkart, Razorpay and Swiggy are leading the sectors and are also setting benchmarks for caring the employees.
The numbers speak volumes and ESOP buybacks in 2020 were modest with just $50 million from 11 startups, but the number jumped to $802 million in 2023. This year, so far, 17 startups have contributed $188 million. Sectors like e-commerce, fintech, SaaS and logistics are leading the charge.
However, it is hard to ignore the potential challenges on the horizon. The proposal of Union Budget to treat share buybacks as dividend income from October 2024 could throw a wrench in the works.
ESOP buybacks have been of course a game changer for the Indian startup ecosystem. Will the golden age of ESOP buybacks fade? Time will tell but it is clear that the trend has a lasting impact.
