When the valuation of a firm is already one of the highest in the country, it attracts a lot of interest. Paytm is in the news, since its employees recently managed to earn Rs 300 crore through exercising their stock options and selling to third party investors. This process has placed the value of Paytm’s parent company, One97 Communications, at a whopping Rs 63,595 crore or $10 billion. It also resulted in over 200 employees of Paytm becoming millionaires.
Flipkart is the only other startup in India valued higher than Paytm, at $11.6 billion. These two, incidentally, are the only two unicorns (startups with a valuation of $1 billion or higher) India has produced.
The buyers or new investors through this sale of stock options include Discovery Capital, a Canadian hedge fund. Paytm has already witnessed an earlier episode of employees selling their stock options when 47 of them pocketed Rs 100 crore among themselves. These kinds of transactions are being defined as secondary transactions and the money being paid by the investors does not accrue to the company, but to the employees who have received these stocks as part of the compensation package agreed to.
Startups need to attract the best talent out there, but there is a risk involved in joining them and the senior and key personnel are wooed by the startup founders by offering them such incentives. Not all employees of all startups end up gaining such windfalls.
In Paytm’s case, for example, the company claims over 200 of its workforce have earned Rs 500 crore so far through the stock options route.
A startup’s valuation is necessarily carried out during the occasions it raises funds from investors. Paytm had raised $1.4 billion from Japan’s SoftBank Group and at that juncture, One97 Communications was valued at $7 billion. Prior to this valuation which was done in the month of May’2017, the company’s value stood at $4.8 billion. So, from there to the current $10 billion mark, it has been a meteoric rise.
For the record though, there are a couple of other firms where such stock options have been exercised by employees. These include Tiger Global, an investment firm and BlackBuck, a logistics venture, but here, the employees sold their stocks back to the company. Flipkart had also recently concluded a buy-back arrangement with its employees which was worth $100 million.