Bengaluru | New Delhi: Scores of employees have reaped a bonanza by selling shares in One97 Communications, which owns digital payments provider Paytm, as investors and founders increase their stake in the Alibaba-backed company, which has recorded a steep surge in valuation as the Indian government seeks to transform the country into a cashless economy.
In the last few weeks, about 47 employees at the Noida-based company — valued at $4.8 billion last year — have sold shares worth about Rs 100 crore to both internal and external buyers, according to company executives who declined to specify the names of the buyers.
“The company has over 500 employees who hold close to 4% shares in the parent company,” said a company representative.
The deal also helps Alibaba and its payments affiliate Ant Financial, which currently holds about 45% stake in One97 Communications, to consolidate their shareholding in the company. These two entities along with early investor SAIF Partners and founder Vijay Shekhar Sharma — who also owns a licence to set up a payments bank — now own about 95% stake in the company.
The Chinese e-commerce group invested $250 million in One97 earlier this month buying out the shares of early investors Reliance Capital, Saama Capital and SAP Ventures. While the Anil Ambani-led Reliance Capital made an estimated 27-fold return on investment in rupee terms, Saama Capital exited at 52 times in dollar terms.
The windfall for employees and investors in Paytm comes at a time when most Indian consumer internet unicorns – a term for privately held billion-dollar valuation companies – are under pressure to agree to a dip in valuations in return for fresh capital. Both online marketplaces Flipkart and Snapdeal are currently in talks with investors as reported by ET.
In contrast, the sale of employee stock options (esops) by Paytm employees is driven by rising investor interest in the company, which was among the biggest beneficiaries of the demonetisation of high-currency notes by the government last November. Last year, several Paytm executives sold part of their esops to the company’s external board members like former Google and Uber executive Amit Singhal, WhatsApp’s Neeraj Arora, and Ruchi Sanghvi, Facebook’s first woman engineer.
Over the past two years, the company has seen close to a 100 employees exercising this option to sell their shares, even though the company remains private. So far, the company has raised Rs 543 crore from One97 and Sharma.
Experts tracking the space feel that such events typically happen when demand for shares in company outstrips supply.
USE OF ESOPS
“Esops have helped us in acquiring excellent talent from the industry and adds to their drive to innovate and disrupt. Our stock option has been active for the last 6-7 years,” said Amit Sinha, senior vice-president of One97.
Paytm calculates the eligibility for awarding esops based on an individual’s contribution to the company, duration of employment and their long-term potential. “We do not factor in a colleague’s designation or remuneration to calculate eligibility,” said a company representative.
Esops are an avenue for companies to hire and retain critical talent but options to cash out are limited.
In November 2015, Flipkart had sold between Rs 180 crore and Rs 240 crore in its employee trust fund to high net-worth individuals for the first time in eight years, in order to provide liquidity for its employees. The company currently has close to 40% employees who receive esops and the variable pay of senior employees is also tied to the company stock options.
Employee wealth created by home-grown online companies in India is worth more than $1.5 billion since 2011, according to citing estimates from executive search firms Heidrick & Struggles and Longhouse Consulting. But less than 5% of esop wealth created has been liquidated through private sale of employee stock, according to the report.
Besides Flipkart, other players like cab-hailing application Ola and mobile advertising firm InMobi have also generated liquidity for their employees. Payments company Citrus Pay, which was acquired by bigger rival PayU for about Rs 860 crore in 2016, saw 50 employees make money by selling their stock options.
“Liquidity events for employees (of unicorn companies) are typically a part of the funding round where a part of the fund is set aside for the employees who have reached the exit timeline,” said Anandorup Ghose, partner talent and rewards, Aon Hewitt Consulting. “Smaller companies or investments at low valuation does not give the company the luxury to provide an exit for employees to sell their stock,” he said.