If you are a startup, hiring smart employees is quite often a challenge. Apart from the fact that you can’t match their MNC salary, there is hardly any respect for ESOPs.
And in most of the cases, ESOPs have failed to live up to the promise. After all, how many startups have had successful exits/IPOs in India that one can trust entrepreneurs when they say ‘Join me! I see huge returns in this business’.
To cut through the niceties of the world, ESOPs are considered a bait to attract talent without any tangible promise in return.
Not Really.
Last week, Prof Vivek Wadhwa wrote (in TC) an article on H1B and quoted me regarding an early decision I took in life.
Some of India’s best and brightest won’t even consider moving to the U.S. Ashish Sinha started his career at one of the first successful tech companies in India, called Aztec software. Later, he worked for Ketera, IBM, and Yahoo, in India. He was offered several opportunities in the U.S., but believed his career would progress better in India. In 2007, Ashish started India’s TechCrunch—a site called PluGGd.in…[read the full article]
Quickly, let me share a bit of context about the entire deal.
I got Aztec ESOPs for INR 3, the company went IPO and the share price even touched INR 227. Without mentioning the exact amount/sale price, I was one of those who saw technology IPO (Aztec was later acquired by MindTree) from India and actually reaped ‘some’ benefits of it (i.e. apart from Infy employees!).
ESOP Success Story From India
At the same time, let me also share that most of the other companies I worked later, their ESOPs didn’t add a single cent to my wallet. At one startup, I got ESOPs for 12 cents and after 2 years, the valuation actually resulted in ESOPs being valued for 1 cent only.
ESOPs are a game of risk and so is a startup venture. You can make money out of only 1 in 10 ventures (that too when you are lucky), but that one gives you enough confidence to try out the other nines.
If you are someone who is evaluation whether to join a startup or not, think beyond ESOPs and see if the company/founder adds value to your career in the long run. Chances are that it always is better to work for a startup than be another cog in the wheel.
And like me, if you get lucky — you will write this 70X story after a few years! 
What has been your experience with ESOPs? Do you consider that a fair game in India?
[stock price graph from moneycontrol.]
Not talked about like Infy, but Onmobile also was a big ESOP story – 15% to employees, many $$ millionaires etc. But we need a lot more stories like these.
Yes, OnMobile, Aztec, Mindtree are post IPO success. I wonder if there are any such success story when the exit was a acquisition.
You can add OnMobile, Mindtree (that I know of) to that list.
Good one. Felt to add/share : it is worth the risk to work for ESOP and Product/R&D type Startups/Organization rather small-medium-big outsourcing companies. Its because ‘Product/R&D type Startups/Organization gives you ample opportunity to be part of a different ‘creative’ world.
You have an opportunity to be part of the story and/or write your own story in later part of your life. You may loose some but you will earn a lot if you are an entrepreneurial type.
There is a section of startup founders mushrooming in India who promise you ESOPs when they give offers but wont give this to you once they extract output from you. Hence make sure that you get the the number of ESOPs and other relevant details in writing before you join any startup.
Have had options/stock in 3 companies in India, seen two exits with zero gain, and waiting for exit in one case
In these cases, the options were ok, but I’ve seen lots of cases where the vesting schedule basically destroys the point of ESOPs. 1 yr cliff, 4 yr vesting with monthly vesting after year 1 is pretty much standard in the US.
But in India, I’ve seen lots of companies doing yearly vesting. Worse, I’ve seen some that start vesting from year 2: so, basically, if you leave after 1 year 11 months, you get nothing. Even worse, I’ve seen 10-20-30-40, each number being % shares vested after each year.
And one’s expected to expect a much lower cash comp in return for this type of option!
I don’t know which type is more prevalent, but if people persist with these annual types, I think they will take away the ESOPs as an attraction completely.