START-UPS TO CASH IN ON FLIPKART’S MILLIONAIRES

Heard of the Paypal mafia? These are the former employees and founders of the global payment giant who used the millions of dollars in wealth they created for themselves to start some of the most valuable companies in the world, such as Tesla, LinkedIn, YouTube and Palantir Technologies.

This was in the US. But the phenomenon could also get repeated in India, thanks to the mega deal that Walmart has sealed with Flipkart to acquire 77 per cent of the company at a valuation of $20.8 billion.

As part of the deal, Flipkart is giving the option to its employees to cash in their vested stock options, which, according to multiple sources within and outside the company, is expected to create at least 40-60 millionaires who are eager to pump in that money to create hundreds of technology-backed ventures on their own or as investors.

The Bengaluru-based company, as part of the $16 billion investment by Walmart, has earmarked around $500 million towards buying back employee stock options (ESOPs). While Flipkart stocks have a vesting period of four years, such kinds of M&A deals usually allow employees to vest their stocks immediately.

“You can expect a lot of ex-employees of Flipkart starting up on their own,” said Manish Maheshwari, former head of Flipkart’s marketplace business, who also owns the company stock. “If you ask me, people will stay put for another three to six months, but after that many of them who are very accomplished or people who make a lot of money will vest their stocks and do something on their own.”

Being the largest Internet company the country has created, Flipkart already has the distinction of being a large breeding ground for start-ups in India. According to research firm Tracxn, over 40 start-ups have already been founded by former employees of Flipkart. These strart-ups have raised close to $210 million in funding so far.

“So, it’s good for India’s start-up ecosystem when big payouts happen. This money finds its way to new startups as angel and VC investments. This has happened in the past and will happen here as well,” said Sharad Sharma, cofounder of iSPIRT, a technology think-tank that represents the software product industry in India.

Previously, only a couple of Indian technology services companies such as Infosys and Wipro had the distinction of creating a large number of entrepreneurs and investors. Flipkart is now entering the league of giants like Google, Facebook and Amazon in fostering next-generation entrepreneurs within itself.

If one goes back in time, Ram Shriram invested back a large chunk of the money he earned from Google, where he was an early investor, into India. One of his early investments in the country was InMobi. Similarly, Chamath Palihapitiya, after cashing in his stocks in Facebook where he was one of the first few employees, ended up investing in companies in India such as EzeTap.

“It is a good deal for people who have been in the company for a couple of years and it’s a great exit for them as well. A problem with most ESOP programmes is that they aren’t liquid, but I think a lot of employees and ex-employees in Flipkart will be happy because of this deal,” said Maheshwari. “Though some people who sold their shares in December will be quite unhappy since the valuation they got was around $11-12 billion.”

According to sources in Flipkart, the quantum of shares offered to someone in the position of vice-president and above was between 200,000 and 1 million units. The firm’s ESOP was largely activated 3-4 years ago and most employees who hold stocks had got them at a time when the valuation was between $3 billion and $7 billion.