US-based hedge fund and venture investor Tiger Global Management is buying back the shares of 140 employees at payments firm Razorpay via an employee stock option (ESOP) plan, a statement by the Bengaluru-based startup said.
The investor is buying the shares through a secondary sale at a 50% higher valuation than that of Razorpay’s last funding round in January this year.
The total payout to Razorpay’s employees would be in the range of $1-2 million (around Rs 7-14 crore), Harshil Mathur, co-founder and chief executive of the startup told TechCircle over the phone.
All of the firm’s existing and former employees who hold vested stocks will be eligible to sell up to 33% of their ESOPs. The company employs a total of 250 employees.
The ESOP buyback process will be completed this week, Mathur added.
“Since initial public offerings are delayed these days, sometimes employees have to wait for 10 years or more to get liquidity out of their ESOPs. Some people have life events coming up before that. We wanted to give them an opportunity to get liquidity early on,” he said.
The ESOP buyback provides Tiger Global an opportunity to invest further and get more equity in the company.
“We are well capitalised right now. We didn’t want to raise another (primary) round now at this point,” said Mathur.
In January this year, Razorpay had raised $20 million (Rs 127 crore then) in its Series B round of funding led by existing investors Tiger Global and Y Combinator, with participation from Matrix Partners.
The company has raised a total of $31.5 million in external funding, so far.
Mathur added that the company may raise a Series C round in the next calendar year.
Devendra Agrawal, founder and chief executive of investment bank Dexter Capital Advisors, told TechCircle such buybacks occur because an investor wants to increase its stake in a portfolio company.
“From an employee’s perspective, if liquidity is created, it is always good. If the deal has been done on a premium, then the credit goes to the founders, because only the management can negotiate on behalf of the employees,” Agrawal added.
In India, ESOPs are not a necessity but a bonus. The offer will help Razorpay attract more talent, he said.
"We should see the ESOP buyback by Tiger Global as a compensation for employees who were probably hired on low salaries. From that perspective, it is a good development," Sanchit Vir Gogia, founder and chief executive of advisory firm Greyhound Research.
The company was set up in 2013 by IIT Roorkee alumni Shashank Kumar and Mathur. Kumar earlier worked with Microsoft while Mathur was working at Schlumberger before launching Razorpay. The firm helps businesses accept online payments via credit card, debit card, net banking and mobile wallets from end customers.
It has 33 angel investors including Kunal Bahl and Rohit Bansal (Snapdeal founders); Abhay Singhal, Amit Gupta and Naveen Tewari (InMobi founders), Kunal Shah and Sandeep Tandon (Freecharge founders), former chief product officer of Flipkart Punit Soni, Ram Shriram (board member and an early investor in Google), Justin Kan (Y Combinator partner and Twitch founder). It was the second Indian company to be selected for US-based Y-Combinator accelerator programme.
In July 2016, the company received an undisclosed investment from American payments and financial services company MasterCard.
Prior to that, it raised $11.5 million from Tiger Global, Matrix Partners and Y Combinator.