Why an Indian startup is spending $75 million on ESOP buybacks

Happy faces.
Happy faces.
Image: Razorpay
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Razorpay is spending $75 million on its biggest employee stock ownership plan (ESOP) buyback yet.

The fintech unicorn’s offer is open to 650 employees across all levels over the next few weeks. Lightspeed Ventures and Moore Strategic Ventures are buying these shares and joining the company’s cap table.

“Every single employee, current and former, has been an integral part of the Razorpay growth story. The last two years have been challenging for each one of us, and despite the challenges, our Razors stuck together and collectively guided the company to achieve newer heights of success,” Harshil Mathur, co-founder and CEO at Razorpay, told Quartz.

“These ESOP buybacks are not only an instrument to generate additional wealth for our employees but also a token of gratitude for their efforts and belief in the company and its purpose.”

Including this latest liquidation event, Razorpay has awarded ESOPs to 1,940 existing and former employees.

Razorpay’s ESOP buybacks grow with the company

ESOPs are usually allocated at the time of hiring, as part of the appraisal or reward programmes. The aim is to give employees ownership interest in the company and motivate them with the promise of future gains.

To keep workers committed, ESOPs come with a vested period within which employees cannot sell their shares. Once that time is up, the company extends a lucrative deal. And the better the company is doing, the more handsome the offer.

For instance, during the last ESOP sale in March 2021, Razorpay spent only $10 million. The jump to $75 million this time is a testament to its steadfast growth. In the past year, it grew by more than 300%. It has set a target of achieving $90 billion in total payment volumes in 2022, up significantly from the $60 billion in 2021.