Zerodha founder Nithin Kamath on Tuesday warned that employee stock ownership plans (ESOP) issued by many companies and startups over the last three years would be out of money.

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Essentially, the value of the shares with the employees will be worth much less than the price at which they were vested. The value of the shares have been eroded by the recent market sell-off, particularly in tech stocks, which reminds Kamath of the dot com boom in the 1990s. “This could affect the morale of many, which will make it even harder for those running the business. 3/7," Kamath tweeted as part of a seven-tweet thread.

The sharp fall in the stock prices of high growth tech companies across the globe is getting crazy, feels like the dot-com boom.

India has weathered the storm mostly because not many such companies are listed & many private ones raised a lot of money last year. 1/7— Nithin Kamath (@Nithin0dha) May 10, 2022This is similar to what the beleaguered co-founder of the Indian fintech company BharatPe, Ashneer Grover, had cited on Twitter just a day earlier. "It’s all about perspective. If you were a Zomato employee and exercised your ESOP at ₹140 or higher price post IPO, you probably paid more cost per share as Income Tax than what you can buy it today from market freely. At ₹56 / share price, markets are giving everyone ESOPs ;)," Grover tweeted.

It’s all about perspective. If you were a Zomato employee and exercised your ESOP at ₹140 or higher price post IPO, you probably paid more cost per share as Income Tax, than what you can buy it today from market freely. At ₹56 / share price, markets are giving everyone ESOPs ;)

— Ashneer Grover (@Ashneer_Grover) May 9, 2022

A whole host of tech startups had doled out ESOPs amidst a boom in valuations since the start of the pandemic. Ahead of Diwali in November 2021, Zerodha created a new ESOP where it allocated 7,00,000 options under its new ESOP plan, according to the latest regulatory filings with the Registrar of Companies (RoC). The new pool is worth a hefty Rs 100 crore in total, estimated Entrackr. The company joined the list of startups such as Paytm, Swiggy and Rivigo, among others, who had also expanded their ESOP pool.

Last week it was reported that Tekion, the automotive retail platform, had bought back ESOPs worth close to Rs300 crore in less than six years of founding the company in a second liquidity event. Around 400 employees had participated in the buyback.

According to Kamath, this should also help employees moderate their expectations. "It is ridiculous that startups have to raise millions of dollars to cover employee costs just to be able to launch a minimum viable product. 6/7," Kamath said.

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First Published:May 10, 2022 1:52 PM IST