Flipkart to issue additional ESOPs to make up for valuation drop
BENGALURU: Few days after its recent capital raise at a valuation of $11.6 billion, online retailer Flipkart has sent out an email to employees stating that they will be issued additional shares to compensate for the lower valuation at which the company raised money in the current round. Flipkart was valued at $15.2 billion in its previous round of funding in 2015.
The lower valuation in the current round has resulted in a price-drop in shares issued to the employees who hold Employee Stock Options issued when the company was valued higher. The set of employees also include those working with Flipkart group companies including like fashion portals Myntra and Jabong besides payments venture PhonePe.
In an email to the employees, Group CEO Binny Bansal said that, "As an organisation, Flipkart takes immense pride in being the employer of choice for thousands of professionals—a vaulted status that only comes with a deep, company-wide sense of transparency and fairness. If Flipkart does well, so should you."
While investors have rights like liquidation preference and anti-dilution rights to protect themselves against a fall in valuation in a private company as they hold preference shares, employees and founders hold common shares which are not protected against such an event.
In Flipkart’s case, however, the grant would be offered to all employees who were allotted stock options at higher than the price established in the latest funding round, Bansal wrote. About a third of Flipkart's 8,000 employees hold stock options.
The move is unprecedented pointed out industry experts. "Across e-commerce companies, a large chunk of ESOPs are issued at the time of joining and during the change of the band. Typically the percentage of employees who have stock options vary from 10% to 20% and is restricted to directors and beyond, with the exception of some senior managers," said Kinjal Choudhary, senior director and country head human resources at China Fortune Land.
The lower valuation in the current round has resulted in a price-drop in shares issued to the employees who hold Employee Stock Options issued when the company was valued higher. The set of employees also include those working with Flipkart group companies including like fashion portals Myntra and Jabong besides payments venture PhonePe.
In an email to the employees, Group CEO Binny Bansal said that, "As an organisation, Flipkart takes immense pride in being the employer of choice for thousands of professionals—a vaulted status that only comes with a deep, company-wide sense of transparency and fairness. If Flipkart does well, so should you."
While investors have rights like liquidation preference and anti-dilution rights to protect themselves against a fall in valuation in a private company as they hold preference shares, employees and founders hold common shares which are not protected against such an event.
In Flipkart’s case, however, the grant would be offered to all employees who were allotted stock options at higher than the price established in the latest funding round, Bansal wrote. About a third of Flipkart's 8,000 employees hold stock options.
The move is unprecedented pointed out industry experts. "Across e-commerce companies, a large chunk of ESOPs are issued at the time of joining and during the change of the band. Typically the percentage of employees who have stock options vary from 10% to 20% and is restricted to directors and beyond, with the exception of some senior managers," said Kinjal Choudhary, senior director and country head human resources at China Fortune Land.
