India’s startup ecosystem is witnessing a significant surge in Employee Stock Ownership Plan (ESOP) buybacks. In FY 2024–25, over 3,000 startup employees benefited from these programs, with companies repurchasing vested stock options worth more than ₹1,450 crore (~$170 million). This trend is reshaping how startups attract, retain, and reward talent while managing financial and strategic objectives.
What Is an ESOP Buyback?
An ESOP buyback occurs when a company repurchases vested stock options from employees, converting their notional equity into real, tangible cash. Beyond rewarding employee loyalty, it’s a strategic move that reflects financial stability and enhances a company’s market credibility.
Why Are Companies Doing This?
- Liquidity Creation: Provides employees access to the monetary value of their shares.
- Talent Retention: Reinforces loyalty by offering financial rewards for long-term commitment.
- Cap Table Optimization: Simplifies ownership structures ahead of funding rounds or IPOs.
- Investor Signaling: Demonstrates organizational health and a culture of sharing success.
India’s ESOP Stars in 2024
Several top-tier startups led the buyback wave in 2024:
- Swiggy: $65 million buyback (July 2024)
- Urban Company: $24 million buyback (May 2024)
- Meesho: $23.6 million buyback (March 2024)
- Capillary Technologies: $20 million buyback
- OfBusiness: $11.8 million buyback
- Adda247: Maiden ESOP buyback benefiting over 130 employees
- Purplle: $5.91 million buyback as part of fundraising
- AppsForBharat: $248.6k buyback for 25 employees
These initiatives not only rewarded employees but also strengthened the companies’ employer brands in a competitive job market.
Why Startups Are Embracing ESOP Buybacks
Talent Retention & Wealth Creation
In a dynamic talent market, buybacks provide employees with tangible value and reaffirm their role in the company’s success. Startups like Meesho and upGrad have effectively used this tool to foster long-term commitment and satisfaction.
Cap Table Management & Fundraising
Before raising capital or going public, startups often use buybacks to clean up their cap tables. For instance, Zepto and Flipkart leveraged buybacks to streamline ownership structures and prepare for future growth.
Inclusion of Early-Stage Startups
ESOP liquidity is no longer exclusive to unicorns. Startups like Adda247 have demonstrated that even smaller ventures can provide liquidity events, promoting a culture of ownership and fairness early in their growth journey.
Employee Perspective: Why ESOP Buybacks Matter
From the employee’s point of view, ESOP buybacks offer several unique and meaningful benefits:
- Financial Reward for Commitment: Employees who joined early and contributed during formative years now see direct financial returns.
- Wealth Creation Without Exit: Unlike IPOs or M&As, buybacks allow employees to benefit even if the company isn’t publicly listed or acquired.
- Liquidity for Personal Goals: Whether it’s buying a house, investing, repaying loans, or supporting family, the proceeds from buybacks enable major life milestones.
- Renewed Motivation: Realizing tangible returns builds deeper loyalty and encourages employees to invest their best efforts in the company’s future.
- Sense of Ownership and Inclusion: Buybacks validate employees’ roles as co-creators of value, reinforcing that their contributions matter.
These benefits reflect how ESOP buybacks are not just corporate financial tools but deeply human ones—designed to empower and reward people.
Strategic Advantages of ESOP Buybacks
- Real Wealth for Employees: Converts paper gains into tangible income.
- Tax Optimization: Structured buybacks can offer more favorable tax outcomes.
- Enhanced Employer Reputation: Attracts and retains high-quality talent.
- Investor Confidence: Demonstrates governance maturity and financial discipline.
What Lies Ahead for FY 2025?
The ESOP buyback trend is expected to gain further traction in FY 2025 with:
- Increased Adoption by Early-Stage Startups: As evidenced by Adda247’s initiative.
- Refined Structuring: Greater emphasis on timing, valuation accuracy, and compliance.
Final Thoughts
The ESOP buyback movement signifies more than just financial transactions—it represents a cultural shift within India’s startup landscape. By empowering employees as co-builders of value and fostering long-term organizational trust, startups are creating a more inclusive, equitable, and sustainable ecosystem.
Whether you’re a founder aiming to reward your team, an investor assessing a startup’s maturity, or an employee holding vested options—FY 2025 promises to be a year where equity truly meets opportunity.
