Flipkart has already turned founders Sachin Bansal and Binny Bansal into billionaires, but it’s still creating wealth for the company’s rank and file employees.
Flipkart employees have today received payments towards a $700 million (Rs. 5,600 crore) ESOP buyback. “The Board of Directors had decided to pay $43.67 (Rs 3,615) as compensation for each Esop (vested options for eligible current and former stakeholders and unvested options only for eligible current stakeholders) as of the record date of December 23, 2022,” Flipkart CEO Kalyan Krishnamurthy told employees in an email. More than 24,000 individuals, including former Flipkart and Myntra employees, are eligible for payments from the buyback. This is the largest startup ESOP buyback of its kind in India.
“I am delighted to inform you that the much-awaited compensation will be made today, July 14, 2023. You will receive the details of your individual payout by the following week, and I thank the team that has worked diligently and tirelessly to bring this endeavor to fruition,” the mail added.
This ‘one-time’ payment to Flipkart employees is part of PhonePe’s funding round after it separated from its erstwhile parent, Flipkart group. The employee shareholder group, which held the stock options in Flipkart, is selling the options, and Walmart is buying them back as part. The buyback is a part of a $1.5-2 billion funding in PhonePe at a pre-money valuation of $12 billion.
PhonePe founders Sameer Nigam and Rahul Chari will also hit paydirt after the buyback. Both are expected to make $20-25 million (Rs. 160-200 crore) each from the buyback. Senior Flipkart executives are expected to make substantial sums as well.
Flipkart is the highest-valued company that emerged out of India’s first startup wave of the 2010s. It’s now been acquired by Walmart, and was last valued at nearly $37 billion, far ahead of the current valuations of listed peers including Paytm ($7 billion), Zomato ($9 billion), and also the latest private valuation of unlisted startups like Byju’s ($5 billion). Flipkart isn’t only the highest-valued startup, but has also generated the most wealth for employees — in prior ESOP buybacks too, senior Flipkart executives have made tens of crores in share buybacks. The latest buyback, though, is for 24,000 employees, and will result in Flipkart’s riches being spread far and wide among its employee base.
And outcomes like these could help reinforce the beliefs of the workforce in India’s startups. Most recent Indian startups have seen their valuations plummet in recent times, which means that their employee ESOPs are worth very little. But success stories like Flipkart will encourage employees to continue to bet big on Indian startups — every once in a while, they can end up creating life-changing amounts of wealth.
Employees of e-commerce major Flipkart have received payments from a $700 million employee stock option (ESOP) buyback today, group CEO Kalyan Krishnamurthy said in an internal email–reviewed by ETtech.
“…the BoD (Board of Directors) had decided to pay $43.67 (Rs 3,615) as compensation for each Esop (vested options for eligible current and former stakeholders and unvested options only for eligible current stakeholders) as of the record date of December 23, 2022”, the latest email from Krishnamurthy further added.
The details of individual payments would reach employees by next week, the statement from Krishnamurthy added. More than 24,000 individuals, including former Flipkart and Myntra employees, are eligible for payments from the buyback.
The ‘one-time’ payment to Flipkart employees is part of PhonePe’s funding round after the payments firm separated from its erstwhile parent, Flipkart group. Walmart will still be the majority shareholder in PhonePe but the employee shareholder group, which held the stock options in Flipkart, is selling the options and Walmart is buying them back as part of a $1.5-2 billion funding in PhonePe at a pre-money valuation of $12 billion.
PhonePe founders Sameer Nigam and Rahul Chari could make $20-25 million each from the buyback, ET had reported in February. Several senior Flipkart executives will also be rolling in dollars after the payment.
“There has certainly been good work across the business, and I want to thank all the teams for their consistent and dedicated efforts in prioritizing impact and value”, Krishnamurthy said in his email.
ET first reported late last week on the buyback payment being made by the end of this month. The payout will be “subject to applicable withholding taxes and other tax rules in respective countries of various Esop holders”, an earlier Flipkart internal note had said about the buyback, adding that legal formalities for the payout were currently underway.
“Employee group shareholders are likely to sell their shares to Walmart as investing in PhonePe in a new round would also incur a significant tax payout for paper money gains in PhonePe as opposed to a cash payout…” ET had reported in November explaining why the employee group chose to sell during this transaction.
The $700 million buyback is the largest for a new-age internet company in the country.
It is part of a $1.5-2 billion fundraise by PhonePe in a round that is seeing investments from Walmart, General Atlantic, Tiger Global and others.
Esops are used as a retention tool and the latest payout would be significant when new funding deals have come to a screeching halt across startups in India. Several well-funded startups such as Byju’s, Unacademy and others have been firing thousands of employees.
Walmart is largely financing the Esop buyback, part of which is a secondary share sale. In a secondary share sale, money goes from new investors to existing shareholders or employees – the firm itself does not receive any of the funds.
PhonePe has already raised about $850 million as part of the round. Out of that, private equity major General Atlantic has pumped in nearly $550 million, valuing the digital payments firm at $12 billion.
Flipkart’s own valuation is expected to be readjusted to about $33 billion from $37.6 billion earlier, as PhonePe will have a separate shareholding structure, people in the know of the matter had told ET in November.