BlackRock, Invesco, and Fidelity Investments all decreased their estimates of the value of Swiggy, BYJU, and Meesho, respectively. This Valuation reduction will also have an effect on the value of the ESOPs to which workers at these firms are entitled.
In recent weeks, VCs and investors have drastically reduced the values of some large Indian firms. BlackRock, Invesco, and Fidelity Investments all decreased their estimates of the value of Swiggy, BYJU, and Meesho, respectively. These Valuation reductions will also have an effect on the value of the ESOPs to which workers at these firms are entitled.
Employee stock ownership plans, or ESOPs, have recently grown in importance in new companies as a means of compensating staff members. When the vesting period is over, stock options in the firm are presented to employees, who can then purchase them at a discount from market value. A founder of We Founder Circle and angel investor, Gaurav VK Singhvi, outlined the worth of ESOPs.
The value of ESOPs provided to employees is directly impacted when a firm faces Valuation reductions, according to Singhvi. ESOPs are sometimes given out with a certain strike price attached, which stands in for the price at which employees will eventually be able to buy company stock. The worth of the firm at the time of award is often used to establish this striking price.
The strike price of the ESOPs remains the same while the market value of the shares reduces in the event that the startup’s valuation falls.
The decline in financial rewards from ESOPs, according to experts and business insiders, may make it more difficult for Indian businesses to retain personnel. “A decline in the company’s valuation estimates reduces the value of the ESOPs held by the employees,” CIEL HR’s MD Aditya Narayana told Business Today. As a result, the employer brand’s appeal is damaged in addition to the retention rate.
Also seeing a wave of layoffs are Indian startups. The layoffs and financing crunch have already dampened the mood for many who work in startups in India. Since the year 2023 began, approximately 70 startups and 12,000 of their employees have been let go.
An obvious worry about lower values is the possible effect on talent attraction and staff retention. Startups have historically leveraged employee stock ownership plans (ESOPs) to recruit and keep top personnel, but Prakash warned that the ESOPs’ diminished value might jeopardize employees’ long-term financial incentives and company loyalty.
Co-founder and CFO of 100X.VC, Yagnesh Sanghrajka, emphasized that employees may still profit from the short-term declines in the company valuations if they believe in the long-term development possibilities of their employer.
