Start-up leaders reap pre-ipo windfall
It was not a happy period for technology stocks after Delhivery filed its red herring prospectus (RHP) with the Securities and Exchange Board of India (Sebi). So, cofounder and CEO, Sahil Barua, and his team reduced the size as well as issue price of their initial public offering, sacrificing immediate cash to increase the chances of the shares rising after listing. The top team chose not to sell any shares of their own during the issue to earn investors’ confidence.
Last week, on Thursday, Delhivery’s shares touched their highest level since listing, before falling to ~536 at Friday’s close, still well above the issue price of ~487. Indeed, there is a case for rewarding Barua and his top team for the way they managed the IPO.
Except that they already reaped their reward, well before the IPO came out. The remuneration of Delhivery’s directors rose 540.9 per cent in 2022, the year they filed the RHP. The rank and file did not do badly either, getting a 112.3 per cent increase in compensation for the employees.
Not all start-up stocks have done well since listing. Paytm shares are trading 71 per cent below their listing price.
Zomato, though it made a strong stock market debut, fell sharply afterwards and is still to catch up with its listing price of ~76. PB Fintech, which owns Paisabazaar and Policybazaar, is trading 32.8 per cent below its listing price.
However, the management leaders at One97 Communications, which owns Paytm, were rewarded with a 50 per cent rise in remuneration in the year of filing the RHP. The bosses at Zomato tucked in a 404.2 per cent increase, a part of it coming because the CFO was added to the KMP pool. The leaders at PB Fintech earned a 182.9 per cent increase in remuneration in the year of the RHP, to go with the 439.3 per cent increase the year before.
On average, the remuneration of the key management personnel (KMP) at the 12 start-ups that were listed on the bourses since 2019 increased 114.9 per cent in the year of filing the RHP. The year before, their compensation had jumped 70.3 per cent. This data is taken from their RHPS filed with Sebi.
Business Standard wrote to each of the 12 start-ups covered in this study but none chose to participate or respond in writing.
The employees in these organisations were not as fortunate, as they could only earn, at an average, 21.4 per cent more in the year of filing the RHP, compared to an increase of 8.8 per cent a year earlier.
A larger sample of 93 companies that filed their RHPS during this period shows KMP remuneration rose 39.2 per cent while employee compensation increased 10.9 per cent.
KMP remuneration includes short- and long-term benefits and stock options, but excludes other benefits such as rent. Compensation figures are annualised in some cases, especially when a start-up filed the RHP in the middle of the financial year. Employee benefit expenses include salaries, wages, bonuses, gratuity and leave encashment. In some cases, they also include KMP salaries.
In spite of the generous average increase in KMP remuneration at the 12 startups, not all of them conform to the trend. For instance, salaries of the top executives at Nazara dipped 19.3 per cent while overall employee compensation rose 37.2 per cent in the year the company filed the RHP.
FSN E-commerce Ventures, which owns brand Nykaa, saw KMP remuneration decline 23.6 per cent in the year of filing, whereas employee benefits increased 24.8 per cent. However, in the case of Nykaa, KMP compensation had risen 169 per cent the year before, while employee salaries had jumped 45 per cent.