How a nascent digital industry generated $1.5 billion of employee wealth in 5 yrs

There hasn’t been a better time for employees to choose between multinationals’ restricted stock units (RSU) and the promise of India’s digital companies. –

Amit Somani, now a venture capital investor in Bengaluru, had spent more than a decade at IBM in the US before joining Google in 2007 as a product management head. By then, the publicly-listed search giant had captured techies’ mind space as much as was once Yahoo’s preserve. But Somani made an outrageous move in three years. He left Google to join an unlisted travel portal in India called MakeMyTrip as chief product officer. Somani was the first of his kind when Indian software engineers in America were still averse to returning home for work. What nobody could see: India was at the cusp of an internet boom in 2010.

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Even Somani didn’t bet on it. “There was a big element of uncertainty. Nothing can be clarified in the early stages,“ he recalls.

The make-or-break factor was chemistry with the founder and team. If MMT can take on international players Expedia and Priceline‘s, it will certainly become a big company, they told him. Somani’s technology experience was vital for the mission. He took a huge pay cut, but the offer was supplemented by an employee stock options plan (ESOP).With this, employees can acquire stocks or ownership in the company.

Six years on, MMT remains the only large online company operating in India, which got publicly listed on the NASDAQ (in 2010) in that tech cycle. (Info Edge, an online classifieds firm, listed in 2006.) And Somani, who worked at MMT until 2014, is a rare instance of a senior leader who saw an internet company from India get listed. He could liquidate his employee stock in the public market amid the internet boom. The move is instructive, at a time when exit options are hard to come by for India’s largest internet companies, all privately funded. With listed multinationals like Google, Amazon and Facebook becoming more aggressive in India, the war for talent is bruising.

In the past six months, Snapdeal chief product officer Anand Chandrasekaran and Flipkart chief technology officer Peeyush Ranjan left the ecommerce companies to join Facebook and (yet unlisted) Airbnb, respectively. Like Somani, both had moved to India from the US to help their companies compete with their international rival. Both have moved back.

Meanwhile the ESOP, a critical tool to even attract such talent back to India, itself has evolved in the Indian landscape in the past five years. “It was seen as a longterm retention tool, not as an incentive to accelerate the business,“ notes Venkat Shastry, partner at Heidrick & Struggles, an advisory that does senior-level search assignments. India’s homegrown companies have used ESOPs to attract talent in compressed timelines, he adds.

The fast sprints in a company’s growth are rewarded, rather than the marathon of loyalty which was the case in the era of Indian IT outsourcing services. “Flipkart and Snapdeal came at a time that the speed at which they had to respond to their context was very quick,“ he explains.

As a consequence, employee wealth created by home-grown online companies is worth more than $1.5 billion since 2011, according to three estimates collated by ET.The Heidrick & Struggles estimate of ESOP value created is $600 million-1 billion because it hires the top 3% of digital honchos.ESOP wealth generated is spread with more than 15,000 employees. It may have touched the 18,000-people mark, according to an estimate by talent acquisition firm CareerNet. Less than 5% of ESOP wealth created has been liquidated through private sale of employee stock organised by companies like Flipkart and Paytm. Both gross ESOP estimates agree that around 40% of this wealth is because of India’s top 10 venture capital-funded online companies like Flipkart, Paytm, Zomato and Ola. Employees constitute 3-5% of the equity base in these companies.But there are another 100 smaller technology companies that have earmarked more than 10% of equity toward ESOP.

There hasn’t been a better time for employees to choose between multinationals’ restricted stock units (RSU) and the promise of India’s digital companies.“In five years, Uber stock could grow by 5x whereas Flipkart’s could grow by 20x,“ says Anshuman Das, co-founder of Longhouse Consulting, an executive search and advisory firm, and CareerNet.

In large homegrown companies, ESOPs have been distributed up to six grades or levels after the founders and top management, Das says. But the fixed salary composition offered is still high, and ESOPs are not helping ventures of all sizes ease their wage bill. “The message that needs to go out to startup employees is: you have not taken risk. So why should you be given reward? There is more wealth to be made if employees participate in the process of wealth creation. Right now, people are here to make a quick buck,“ he explains.

Apart from India being in the early stages of a startup revolution, the risk aversion has to do with the grey areas that exist between founders and employees.“The founder is the one with all the information–when you are going to sell, and which employee really made it happen for me, and who didn’t,“ says a tech entrepreneur, who asked not to be identified.“A founder has that very short period to make good those people who contributed to the startup’s growth and success.“

(read the rest on ET)

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