ESOP for Founders
Making the closed open!
India’s private market is “closed”. You’re probably thinking, we have seen over 20 unicorns being created this year, “retail-like” participation in startup investing is happening at a pace and scale we have not witnessed before and our largest technology companies are now listing (Zomato and Freshworks amongst others) – what is Nimesh saying? India’s private markets are far from being closed… Well, as an insider (for what it’s worth) I see that we are just at the start, or like I’ve said before, we are only at the lunch session of Day 2 of a cricket test match. Where we […]
What Is the Right Time to Exercise Stock Options?
For many employees in the US, especially those at startups, stock options are a part of their compensation packages. While the right to buy stock in a company at a set price is an attractive form of compensation, stock options have more complex tax implications than straight cash. Understanding NSOs and ISOs The two basic stock options are Non-qualified Stock Options (NSOs) and Incentive Stock Options (ISOs). Both NSOs and ISOs may be subject to a vesting schedule during which employees can buy a certain number of shares each year over a period of several years. Regardless of the vesting […]
How Are Stock Options Taxed in the USA?
For many employees in the US, especially those at startups, stock options are a part of their compensation packages. While the right to buy stock in a company at a set price is an attractive form of compensation, stock options have more complex tax implications than straight cash. Stock Options: NSOs and ISOs The two basic types of stock options are Non-qualified Stock Options (NSOs) and Incentive Stock Options (ISOs) and they both have different tax provisions. Both NSOs and ISOs are subject to a vesting schedule during which employees can buy a certain number of shares each year over […]
ESOPs: What’s the ESOP DNA of your startup? #LetsTalkEquity
In this #LetsTalkEquity interview with TN Hari, Head HR of BigBasket – India’s most significant online food and grocery store, we deep dive into how you can think about ESOPs at your startup. Hari has been an HR practitioner and advisor to multiple startups and scale-ups and helped shape four successful exits in different industries, including an IPO on NASDAQ. Presently, Hari is the Chief People Officer at Big Basket, an advisor to VCs like Arkam Ventures and The Fundamentum Partnership. In this free-wheeling chat with Ganesh Nayak of trica equity, Hari talks about: How ESOP policies have evolved over […]
ESOPs 101: How do they work?
ESOPs are non-linear wealth creation mechanisms that essentially give employees the option to buy a certain amount of company shares either at market value or at a discounted price. An employee with ESOPs becomes a potential shareholder and can buy vested stock options ESOPs can be partially or completely monetized on liquidity events such as buybacks, secondary sales, or an IPO This monetization of ESOPs (if the startup has a considerable valuation) will far exceed the employee’s standard remuneration Before we explore the lifecycle of ESOPs, you need to be familiar with a few terminologies: Grant Letter: The letter through […]
Building employee-friendly ESOP Policies | #LetsTalkESOP
“The biggest challenge for most startups is to keep the startup operational while managing employees’ salary expectations. A solution to this problem is ESOP grants,” says Anirudha Modak, Founder & Principal Consultant at Guru On Tap Consulting – a Pune-based boutique consulting firm. In his 30+ years of professional experience, Anirudha has worked across several roles, including sales, marketing, business development, and operations in India and abroad. He climbed up the ladder and became the Business and Operations Head – India of a listed IT company for around 3 years. In this episode of #LetsTalkESOP with trica equity, Anirudha talks about […]
The Secret Behind the Flurry of ESOP Buybacks in India
ESOP buybacks allow employees to sell their vested ESOPs to the employer. Startups may choose to buy back the ESOPs at a premium under specific instances, for instance, when founders need to replenish the ESOP pool without diluting further. Note that, in practice, an ESOP buyback doesn’t involve the sale of shares. The employee signs a letter to forfeit their vested ESOPs, and, in return, the company provides them with a salary bonus that is equivalent to the current price of those shares. Any amount that the employees receive through these ESOPs sales becomes part of their income. Therefore, it […]
#LetsTalkEquity | The ‘fearless’ CFO and his ‘do it’ attitude
Amit Agarwal, an alumnus of IIT Kanpur, started his journey as a consultant in 2007 and moved up the ladder to eventually become the CFO of Delhivery in 2019. In his initial professional years, Amit worked in mortgage lending and insurance and built a strong understanding of data analytics and how data can be leveraged to solve complex problems. He, however, always had a love for numbers and finance. So Amit went on to enrol in a CFA program and got familiar with several practical aspects of finance. A few years into the job, he wanted to do something impactful […]
ESOP Management at Scripbox
The foundation stone of Scripbox was laid in 2012. The idea was simple – use proprietary algorithms to identify mutual fund plans for users and recommend a limited list to choose from. Eight years down the line, Scripbox has evolved to become a frontline player in the wealth management space, managing over $200 M and with a presence across 2440+ cities. Recently, Scripbox raised $21.4 M in a Series C round from Accel, and Omidyar Network, amongst others. Today, more than 30% out of Scripbox’s 150+ employees hold ESOPs. In a conversation with Nishant Prasad who heads up legal at […]
ESOP Accounting for Indian Startups Using the Graded Vesting Method
Companies that follow Accounting Standards may choose either graded vesting method or straight-line method for option valuation for bookkeeping ESOP expenses. But, companies that follow Indian Accounting Standards (Ind AS) are required to use the graded vesting method for booking their ESOP expenses. trica equity digitises this ESOP accounting as a whole, and you can reach out to us for details on how we do it. Graded Vesting Method for Indian Accounting Standards (Ind AS) Under an employee stock option plan, option grants may vest on more than one date – spread over months and years (including cliff or otherwise). […]
ESOP for Employees
All You Need to Know About ESOP Vesting Period
The start-up ecosystem in India is the third-largest in the world and draws a wide range of global investors. In a webinar on ESOPs, the founders of trica equity and Inventus Law talk about how incorporation and initial generation of funds through equity are parts of the first steps of the company. In conjunction with this, employee stock option plans (ESOPs) are tools to leverage equity, tap into financial and human capital, and retain talent to improve the company’s performance and increase its profitability. Vesting schedules are set up by companies to determine when talented employees become fully “vested,” or […]
What are Stock Appreciation Rights (SARs)?
SARs are a form of bonus compensation given to employees equal to the ‘appreciation’ or increase in the price of the company stock over an established time period. This form of compensation is beneficial to the employee when the company stock price rises. Through SARs, employees can actually exercise and realize liquidity from a particular stock at any point between the time it vests and until the time it expires. How are SARs rewarded? In most cases, the vesting schedule of SARs is tied to performance goals. After an employee meets pre-defined performance targets, an exercise period is allocated to […]
What Does Tax Deferral on ESOPs Mean for a Startup?
Employee stock ownership plans (ESOPs) are attractive benefits that are part of the employee compensation package. As companies understand the pain points of retaining talented staff, offering meaningful employee stock options makes more sense than ever. And what’s more, your employees can now enjoy the benefits of ESOPs with the current tax deferral strategy, which allows them to pay taxes at a later date. This article provides an overview of tax deferral on ESOPs, weighing the cost and benefits and what this means for your employees. Allocation of ESOPs and their benefits in India The implementation of ESOPs is a […]
Making the closed open!
India’s private market is “closed”. You’re probably thinking, we have seen over 20 unicorns being created this year, “retail-like” participation in startup investing is happening at a pace and scale we have not witnessed before and our largest technology companies are now listing (Zomato and Freshworks amongst others) – what is Nimesh saying? India’s private markets are far from being closed… Well, as an insider (for what it’s worth) I see that we are just at the start, or like I’ve said before, we are only at the lunch session of Day 2 of a cricket test match. Where we […]
Is Your ESOP Plan Effective in Hiring & Retaining Employees?
The most pivotal asset a company has is its workforce. Therefore, it is not only vital to hire outstanding talent, but it is also critical to retain them. It’s only then that a business grows. The reason is simple. A high attrition rate is expensive. The repetitive cycle of finding, onboarding, and training talent leads to a bleeding cash outflow. Besides, the business sorely lacks engaged, vested employees. Cash incentives are one route to attracting top talent, as attested by the economic principle of efficiency wages. Paying the workforce wages higher than the market equilibrium lures better candidates. It is […]
4 Core Factors That Question the Transferability of ESOPs
Employee Stock Option Plans or ESOPs were first introduced in 1947 in the US to encourage employee ownership, based on the theory that such companies perform better. The positive effect that ESOPs had on performance was studied and documented by Harvard Business Review in 1987. It showed that 73% of companies that started an ESOP showed improved performance, and the increase in sales growth attributed to ESOP commencement was 3.51%. Therefore, the theory on which ESOPs were first introduced has proven to be factually correct. However, if ESOPs were transferable, will these benefits still stand? Can ESOPs be transferred? Legally […]
What Is the Right Time to Exercise Stock Options?
For many employees in the US, especially those at startups, stock options are a part of their compensation packages. While the right to buy stock in a company at a set price is an attractive form of compensation, stock options have more complex tax implications than straight cash. Understanding NSOs and ISOs The two basic stock options are Non-qualified Stock Options (NSOs) and Incentive Stock Options (ISOs). Both NSOs and ISOs may be subject to a vesting schedule during which employees can buy a certain number of shares each year over a period of several years. Regardless of the vesting […]
How Are Stock Options Taxed in the USA?
For many employees in the US, especially those at startups, stock options are a part of their compensation packages. While the right to buy stock in a company at a set price is an attractive form of compensation, stock options have more complex tax implications than straight cash. Stock Options: NSOs and ISOs The two basic types of stock options are Non-qualified Stock Options (NSOs) and Incentive Stock Options (ISOs) and they both have different tax provisions. Both NSOs and ISOs are subject to a vesting schedule during which employees can buy a certain number of shares each year over […]
Avoid tax on stock options through an Individual Retirement Account (IRA)
A stock option plan is a wealth creation plan that essentially gives an employee the option to buy a certain amount of company shares either at market value or at a discounted price. Employees, therefore, become shareholders of the company. As per the stipulated time frame defined in their stock option scheme document, employees can actually buy the shares that were once provided to them as an option. Post this, they can either monetize all or some of these shares when the company announces a liquidity event like a buyback or secondary sale or an IPO (Initial Public Offering). Click […]
5 questions employees should ask about ESOPs during an interview
Nothing improves the financial life of an employee more than owning equity (ESOPs) in a successful startup – equity provides non-linear wealth generation and financial security. Employees should ask pointed questions to ensure that ESOPs are not just money on paper Employees should demand formal letters for all ESOP-related documentation Employees should ask about the size of the pool, the vesting schedule, exercise period on exit Satheesh KV, ex-HR Director at Flipkart, says “Liquidity of ESOPs depends on the founder. But the employees should make sure that they understand the true value of ESOPs that are granted to them. What […]
Cap Table
Cap Table Management Checklist by Pros
Using a cap table to manage and develop your company’s shares is an essential aspect of business evolution. However, being a newcomer to the startup world can be intimidating, making it challenging to construct a cap table and make decisions about it. A cap table checklist will help new business owners understand and manage their resources to develop their business. Why Is A Cap Table Important? A cap table is a technique used by start-ups and new firms to demonstrate ownership. This comprises common shares, preference shares, options, warrants, convertible notes, and various other securities. It would have ramifications for […]
All You Need to Know About Start-up Funding Rounds
If you are an entrepreneur looking to grow and scale, you might need to look into financing your start-up. Once valued for their rarity, unicorns have grown more commonplace as investors are making more deals, funding of start-ups are more readily available, and the exit market has improved. Most successful start-ups have undertaken efforts to raise capital through several rounds of external funding. As a result, the global venture capital funding in the first half of 2021 reached record highs with over $288 billion in global investment, as per Crunchbase. In this article, we discuss more about start-up funding rounds. […]
Equity Term Sheet: What Is It and How to Prepare One?
If you are a budding entrepreneur, you will know that finding investors who believe in your business idea, have the financial ability, and willingness to invest in your business is an arduous task. However, once you find one, you need to safeguard your interest and commit to those who are ready to invest their hard-earned money into your business. An Equity Term Sheet can do this. So what is it? And how to prepare one? Keep reading to find out. Understanding Equity Term Sheets This section aims to explain the meaning, components, and features of an equity term sheet. What […]
All You Need to Know About Liquidation Preference
If you are an entrepreneur or in the top management of a growing start-up, your primary focus is probably on ensuring smooth operations, creating business opportunities, recruiting the right talent, and streamlining processes in your organization. Thinking about which investors get paid off first if your venture gets sold to a larger company is not an everyday affair. However, it is important to know about this from the get-go so that there are no surprises if the situation arises. Liquidation preference, as the name suggests, gives preference to certain investors when complete or partial liquidation occurs. Liquidation preference cannot be […]
Cap Table Management Software: 3 Reasons Why Founders Need It
Raising sufficient funds to kickstart a startup is the most prominent challenge entrepreneurs face. However, the financial concerns do not end with raising funds. Once founders have the financial means to get the business rolling, the next focus should be on managing the equity of the company. To do so, founders rely on the capitalization table or the cap table. An organized cap table is essential to make future financial and administrative decisions. However, maintaining a cap table all by yourself can be a daunting task. At the same time, you might not want to hand over the reins to […]
Making the closed open!
India’s private market is “closed”. You’re probably thinking, we have seen over 20 unicorns being created this year, “retail-like” participation in startup investing is happening at a pace and scale we have not witnessed before and our largest technology companies are now listing (Zomato and Freshworks amongst others) – what is Nimesh saying? India’s private markets are far from being closed… Well, as an insider (for what it’s worth) I see that we are just at the start, or like I’ve said before, we are only at the lunch session of Day 2 of a cricket test match. Where we […]
Top 6 Features of the Best Carta Alternatives
Equity management is a daunting task while maintaining business profitability and growth. Equity represents the spirit of member-ownership and must be managed effectively. A good equity management software, also known as cap table software, helps administer the business’s share ownership, obtain 409A valuation, and manage complexities associated with equity. In this regard, Carta is a popular equity management software that simplifies stock option compensation, expense management, financial reporting, and more. But not every organization has the same needs, is of the same size, or shares future goals. So you need one that works best for your business goals without compromising […]
7 Things Investors Look for in a Cap Table
Investors are the ones who put in their hard-earned money into a business that they believe in. They do so with the expectation of high returns. Other than returns, it is the responsibility of a company to show the details of investment in a neat and easy-to-understand manner to investors at any given point in time. This is done using a tool known as a Cap Table, which has several other advantages as well. What is a Cap Table? A cap table or capitalization table is a snapshot of the equity holdings of a company. It shows the percentage of […]
How Transparency in Cap Tables Can Benefit Your Startup
Founders establish a business because they have a product or service they want to market. But as the firm grows and matures, the way they run their business must change to make strategic growth decisions. One such required corporate progression is creating and properly managing a capitalisation table (cap table). Capitalisation refers to the total and itemised value of all those who own equity in the company or have the right to receive equity in the future. It is an ideal proposition for the founders, especially of startups, to attract, groom, and retain quality talent in the organization. Read more […]
A Founder’s Guide to Valuation Certificates
Valuations! Yes, something no founder can get away from. While arriving at the valuation of your startup is a to and fro with your investors, once you get to it, there is a tonne of paperwork around it that a startup needs to negotiate. In this blog, we have comprehensively covered valuation certificates, including definitions, when they should be issued, who can issue them, associated documents and requisites, and the various models used to issue valuation certificates. Certificate of Valuation A valuation certificate is a certified business valuation required to ascertain the fair market value or FMV of shares of […]