MagicalRaccoon

Wealth Creation through ESOPS

What is the probability of generating significant wealth (1-5Cr) by working at startups(Both US headquartered and India headquartered) in India? Is Generating wealth through ESOPS normal thing in India or very few lucky ones make such money? Do you know guys who have made significant money by working at startups? If yes, what parameters one should look for while identifying such startups?

21mo ago

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ZippyUnicorn

Stealth21mo

The probability of wealth creation via esops is very low. Mostly startups fail and esops become worthless. In scenario where and "when" esops have significant value, the early employee's compensation will be significant enough in first place that it will be extra cherry on the cake and not the only source of wealth creation.

SwirlyQuokka

Google21mo

JumpyHamster

Stealth21mo

Pareto principle 20% of folks will make 80% of the returns. Not everyone is so lucky.

WigglyBanana

Stealth21mo

Definitely know people who have made excellent outcomes from being involved in the early days of unicorns.

There are enough people from teams like Flipkart, Zomato (going down to the first 20-30 people here) that are easily worth multiple crores.

I don’t feel, however, any of them could have predicted this. And its really tough to figure out how to find yourself at an early team that will lead to this (after all, even top investors end up with enough dead portfolio despite all DD)

Looking at quality of team, how thoughtful the founders are, how differentiated the approach is - can be some of the ways to increase probability

Ultimately, I feel the best shot is to stick to the early stage world, brace through the ups and downs, and end up with one such startup.

MagicalRaccoon

Oracle21mo

So what is risk reward like for joining a early stage startup (till series A) vs medium and late stage startup?

GroovyBoba

X (formerly Twitter)21mo

You can ask for more esops when they series A. But it comes with the risk of your esops being just paper due to the company failing, which is true for most startups

JumpyMuffin

Slice21mo

Less than 1% people who get ESOPs make money through them. You getting liquidity has a probability, success of startup is a probability, then there are tax implications, so consider it a lottery ticket. If you get it, great, but if you don't, shouldn't compromise on your basic pay for it

MagicalRaccoon

Oracle21mo

But risk reward ratio would be different for starups in different stage (early stage vs medium-late stage starups). What is your opinion on this?

JumpyMuffin

Slice21mo

If you are risking a part of your main pay, then it's a risk, if you get your ESOPs as a probable bonus, there is no risk, maybe reward

SwirlyNugget

IBM21mo

Ideally if you join a startup, you’re betting on the idea, vision and are really hoping that you end up creating wealth via esops, because that’s the only thing that is uncapped (in terms of growth).

Few startups which’ve done really well on this front are freshworks (lots of early employees bought fancy cars and houses), Razorpay (through regular buybacks), Acko, Porter.

I don’t know about how early employees at Paytm, Nykaa and Zomato did post ipo.

FluffyCoconut

Razorpay21mo

Here are my 2 cents:

Look at the industry first - is it growing at 15-20% CAGR or 3-4%. An average team in a high growth industry can do quite well even with an average team. In a low growth rate situation, even a world class team will have a hard time.

Second, look at good business models - not a mega cash burn business. Some cash burn is fine - You should do your research here. You can buy financial statements of start ups online for a few 100 bucks easily.

Check founders - what's the vision like, passion for the space, ambition, demanding excellence, cares about people and values.

If you can find these three - you significantly cut down on luck as a factor. You don't need to time your entry into the company at seed or series A times. With these three things, you'll have a company that lasts years and where you can work for years and grow. Even at Series C, you can negotiate great equity and make a few Crs. You should be willing to spend time in the company, however.

FluffyCoconut

Razorpay21mo

And yes, there are quite a few $1m+ outcomes in Razorpay.

FluffyCoconut

Razorpay21mo

And many, many Cr+

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