ESOP value obliterated

After reading this article, it seems like early players who have become big had the fortune of liquidity. What do you think about more recent startups in last 5yrs or so? https://www.moneycontrol.com/news/technology/esop-cashout-events-drop-by-62-in-2023-as-funding-winter-bites-11987051.html

Truths about ESOP 101 After working in multiple fast growth startup’s and having been part of multiple buybacks as well as being in the startup ecosystem for a decade I want to put to bear my pov about creating wealth through ESOP. Like any other randomised event, ESOP also follows Pareto principle which means a very small number of people within the company ever make sizable wealth that they elevate to the top 0.1% of the country. The Pareto also applies with companies; significantly small minority of companies in India have employee friendly policies which enables an employee to create wealth. Most startup’s have dark patterns within their esop policy which either locks you in for insufferable durations or forces you to pay exorbitant taxes to gain the right to exercise your esops when you are leaving the company. Survivorship bias plays a huge role in enabling the narrative that esop is a great wealth generating tool leading to rude awakening for an employee after they join a company. This doesn’t mean you can’t make wealth, it just means don’t get carried away by narratives and take preventable errors in your career. Always talk to multiple people in startup’s and ask relevant questions to understand esop policies better. Like everything else optimising only for esop for wealth creation will mostly not result in it.

Funding winter has taught us that cash is king. How should one negotiate ESOPs now that it is clear that almost all unicorns are overvalued? Startups are still peddling ESOPs to new employees at 2021 valuation which will get corrected sooner or later.

Horrific scenes in the Indian startup ecosystem. From being on the verge of an IPO to raising an emergency round which shall lead to the sudden death of employee ESOPs. Crores of wealth destroyed for the employees. A chain reaction of horror is about to unfold for late stage startups.

Where did you work and how much money did you make? Asking as it looks like a lot of promise of ESOPs and wealth creation has failed employees in this bloodbath slow growth, layoffs, and job changes.

I have read somewhere that 90% of the People who receive ESOP are never able to benefit from it? (Company not doing well hence never able to sell it). Etc

What's the value of your ESOPs when allotted to you and their worth now? Or they just melted like soap?

This post is for younger minds to not fall for ESOPs as a wealth creation tool. Why do I say that? ESOP pool is generally less than 10% of total equity distributed among thousand and ten thousands of employees. The share you get is miniscule. Founders saying that the pie will be big enough so that this percentage will matter is a hyper-optimistic prediction with nothing to back it. You have to ideally wait till IPO to even make the miniscule amount. Very few companies buyback and fewer will do post-ZIRP ESOPs only give you the option to buy not right to buy. Company can in some circumstances take that right away. People in positions of power should negotiate for rights not option. The success rate of startups is less than 10% which means the chances of this miniscule amount is low. Overall, lowering your salary for more ESOPs won't make sense unless you are convinced that the startup will go big.

I will go first - It’s hectic as hell, but if you are passionate about the problem that specific startup is solving- it is really rewarding and exciting. But that’s just my opinion not everyone feels the same way about crazy work schedules and WLB which early stage startups tend to have . Please share your thoughts and experiences!