Tech3 | ESOP bonanza at Indian startups; A peek into Zepto's pitch deck; and more

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In today’s newsletter:

• ESOP bonanza: Cashouts hit $1.5 bn over 3 years?
• What Zepto's pitch deck revealed about quick commerce
• Green shoots again for tech IPOs in India

ESOP bonanza: Cashouts hit $1.5 bn over 3 years

Hiring freezes, layoffs, valuation cuts, and a funding winter might make it seem like everything is gloomy in the startup ecosystem. But it isn't.

Driving the news

Cashouts of employee stock options (ESOPs)?have created $1.5 billion in wealth? for startup employees in the last 3 years, according to data from cap table management platform Qapita.

In 2021, ESOP liquidity events worth $420 million occurred and $292 million in 2022.?

• So far in 2023, around $750 million has been cashed out

Most of the cashouts have been from blue-blooded unicorns like?Flipkart , Paytm, and Swiggy. However, smaller startups that have not yet reached scale in operations or funding have also contributed to the trend.

Time for course correction

For instance, fintech startup Grip Invest conducted an ESOP buyback last year just after raising a Series A round of $3 million and 18 months into operations

• Industry insiders say that such early-stage buybacks are unlikely to happen in the near future, at least until the funding winter subsides

However, ESOPs are expected to become a larger part of overall compensation as startups tighten their belts to reduce cash burn amid the funding winter.

Tax woes:?Experts say that the recent boom in ESOP cashouts has occurred despite the unfavourable tax regime for such compensation in India.

• India taxes ESOPs twice: once when employees convert the options to shares, and again when they sell the shares
• In contrast, advanced jurisdictions like Singapore do not tax ESOPs in the interim. They only tax ESOPs when the shares are sold

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