Startups' IPO frenzy minting millionaires
There will be a new category of angel investors, who will get their money from the IPO through ESOPs and this process will create many millionaire employees.
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The initial public offering (IPO) frenzy seen among the new age internet startups in India may create many dollar-millionaires in coming months, who will predominantly be the founders and top employees of these companies.
Many experts are of the opinion that many of these dollar-millionaires will turn into angel investors, who will bet on startups with interesting concepts as seen in earlier occasions.
"There will be a new category of angel investors who will get their money from the IPO through ESOPs (employee stock options) because this process will create many millionaire employees. So, overall funding for the startup ecosystem will improve through these IPOs," said Vivek Durai, founder of business intelligence platform Paper.vc.
Meanwhile, the stellar listing of food delivery platform Zomato has already created around 18 dollar-millionaires as the outcome of the IPO process. The company had a stellar listing on July 23 with the market capitalisation of the internet startup breaching Rs 1 lakh crore, enabling the company to enter the top-100 elite club of listed companies.
In this process, Zomato's CEO & cofounder Deepinder Goyal's net worth stood at Rs 4,650 crore (around $630 million) for 5.5 per cent stake.
Similarly, cofounder and chief technology officer of Zomato, Gunjan Patidar's shares and EOPs (employee stock options) were valued at Rs 363 crore.
Another cofounder Gaurav Gupta,who heads the supply function at Zomato, saw his net worth at Rs 179 crore. Akriti Chopra, another cofounder, held ESOPs worth Rs 149 crore.Zomato's stellar listing and subsequent creation of many dollar-millionaires has raised hopes for Paytm, which has filed draft red herring prospectus with the market regulator for going public.
As per the submission, the financial services firm is planning to raise Rs 16,600 crore ($2.23 billion) from investors, which if successful, will be the biggest stock market listing in India.
By the end of April, the valuation of overall employee stock ownership plan (ESOP) of Paytm was at $604 million (around Rs 4,200 crore). It indicates that successful public listing of Paytm will give rise to a minimum of two dozen dollar-millionaires in this process.
"We have seen in earlier occasions that successful exit of founders and top employees have given rise to more angel investors betting on new age companies. So, this will create a positive loop in the funding ecosystem," said Pareekh Jain, founder of Pareekh Consulting, who advises enterprises on their technology spending.
In 2018, when Walmart acquired Flipkart, it had reserved $500 million to buy back ESOPs from Flipkart staffers. This buyback had turned more than 100 employees into millionaires.
A number of new-age companies, including Swiggy, Zerodha and Razorpay are buying back ESOPs in regular intervals from employees at the time of raising funds from PE investors or from their internal accruals.
The public listing of these new age startups is likely to accelerate this process, creating a lot of millionaire employees in this process.
Apart from Paytm, many startups including Delhivery, Nykaa, and PolicyBazaar among others are also planning to go public in coming months.
