Tuesday, July 22, 2014

Should you join a startup? Yes, if you want high risk and high return and how ESOPs making receptionist and peon millionaire

We have heard about ESOPs (Employee Stock Options) and fascinated, if we get such organization. We know the recent story of Whatsapp when its every employee became a millionaire after facebook acquired whatsapp.
My observation is, great reward always come with great risks. Amount of success in business and job totally depends on the amount of risk you take. My business economics subject during MBA taught me, an entrepreneur has ability to take risk. Very true. I have witnessed this in my real life experience. I have very close friends like brother Vinit and Bipin who took  very big risk in life. Wherever we were 12 years back, now we have moved much ahead. I had lesser risk taking appetite whereas they had bigger. So the result is, now they have their own venture, franchisee of a leading retail brand and yes, monetarily also they have grown much more.
Whether it is a job or a business, you must take risks in order to get success. We feel envy of those people getting ESOPs and we hear that post acquiring or merger or IPO listing, even a junior executive becoming millionaire. But the question is, how many of us really ready to take risk to join a start up?
I remember, during my initial days of career in recruitment, I had been handling all mix of client from fortune 500 to one of the most prestigious companies like Aditya Birla Group, 3i infotech, Mahindra and Mahindra and I truly enjoyed.  I also took risk to work for a smaller, lesser known companies and companies with low turnover as well as startup. So people who were hoping for job in the role of VP, GM had few questions:

What is the turnover of the company?
Does it provide car?
5 days or six days working?
To whom will I report?
And, I could find very few people showing interest and turning for interviews.

 But yes, there had been people who took risk, who had vision, who had foresight and they joined such organization and succeeded well. But, yes, it involves lot of risk when you join a small and medium enterprises and a start up. I too accepted such challenges in my career and parted the way when the management and I could not see agreement on certain points. When I look back, I do not regret on my that decision.

Why should you join a start up?

  1. It provides you excellent opportunity to learn.
  2. It provides you opportunity to experiment in different area.
  3. You get opportunity to closely work with the management and take participation in decision making process.
  4. You get cross functional experience too which expands knowledge.
  5. With the growth of the organization, you also grow and you feel sense of ownership.
  6. Rather than just an employee, you become an entrepreneur too.
  7. Start up provides more incentive and less fixed salary which force you really to perform.
  8. Start ups offer ESOPs, profit sharing and less fixed package which has long term benefit.

Why you should not join a start up

  1. If the management lacks in vision and creativity, your career will be in bad shape
  2. You may not get easy access to top multinational as there is stereotype in MNCs to hire people from MNCs only.
  3. If it fails, it poses greater risk for your career.  
  4. If you do not like to take risks it is not for you.
  5. If a start up does not intend from heart to do good, chances of failing is high and it may not be good for your career.

Here is an article about snapdeal and flipkart which is useful for your understanding including ESOPs. I hope you will like it
Road to riches: Ecommerce firms like Flipkart, Snapdeal say they too can make their low-level workers millionaires
By Rasul Bailay | 22 July 2014, 7:42 AM IST

NEW DELHI: Infosys founder Narayana Murthy's chauffeur and personal assistant had hit headlines in late 1990s for having crossed the wealth barrier - when value of their stock options skyrocketed. Office boys, warehouse supervisors, clerks, receptionists and other non-managerial employees of some of India's sharpest ecommerce firms can cross that same barrier, provided their firms offer a buyback or they get listed or there's an M&A activity.

Flipkart, Snapdeal, ShopClues and Infibeam are among e-commerce notables that have stock options for lowerrung, non-managerial staff. A typical example of the next inspiring wealth creation story may well be Shambu Biswas. He joined a six-member Bangalore startup as an office boy in 2009 and received employee stock options (Esops). That startup is Flipkart, expected to be valued at around $5 billion after the next round of fund-raising.

Esops given to Biswas, who earns Rs 15,000 a month now, can at that time cross the Rs 10-lakh mark. They are worth around Rs 7 lakh currently. And the good thing for Biswas and six other Flipkart employees at the level of administration assistants and operations executives, who between them hold 0.07% of the company's Esops, is that they don't have to necessarily wait for an IPO.

Flipkart can offer to buy back and indeed, Biswas sold 10% of his Esops last year and put Rs 40,000 in a fixed deposit. For lower-rung employees, this is a game changer - the value of their Esops, Flipkart says, is between four and thirteen times their annual salaries. Flipkart's rival Snapdeal told ET it has four employees at the lower level who have Esops. But Snapdeal refused to share details of these. Neither did it answer questions on how employees can encash these Esops. Snapdeal is valued at about a billion dollars.

Infibeam's founder and CEO Vishal Mehta told ET around 15-20 employees - office boys, customer service staff, administration assistants and delivery personnel - have Esops. Mehta also said these employees are allowed to encash some portions of their Esops whenever the company raises fresh funds. Infibeam is reportedly preparing for a Rs 500-crore IPO, potentially valuing the company in the Rs 2,500-Rs 3,000 crore range.

How much will Infibeam's office boys and assistants make? Mehta says he "doesn't want to speculate" but the "numbers will be significant enough to change these employees' lives". "It's a lifetime opportunity". Alifetime opportunity is how Satinder Singh sees his Esops in Shopclues.

Singh started as a warehouse supervisor and was one of the first Shopclues employees. His Esops will be worth Rs 10 lakh-plus by 2016. That's the time - after four years of employment -Singh's Esops will be fully vested. But Singh and around 20 other lower-level Shopclues employees will have to wait for an IPO or an M&A events to encash their Esops. Radhika Aggarwal, co-founder of Shopclues, told ET "employees cannot encash till there is a buyer...either in public market like an IPO or a private market like an acquisition or a merger."

But since Shopclues plans to go public in 2016, for employees like Singh or Afzal Khan - an office boy promoted to administration assistant - the wait may not be too long.

As far as Esops are concerned, a note of caution is advisable. While none of the companies ET spoke to countenanced such a possibility, just having Esops doesn't necessarily guarantee a fat payout. Last year's sale of redBus to Naspers Ltd for $135 million exemplifies the pitfalls of the system. Without an accelerated vesting programme, which means Esops get converted into shares immediately in the event of a sale, the paper you hold may not be the ticket to great wealth. Meanwhile, some of these Esop-holders need some handholding to protect their potential wealth. Aggarwal says the company protects employees' interests by keeping back-up records of their Esops - a fallback in case these employees lose the paperwork.

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