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From funding winter to valuation drops: What it means for senior executives with ESOPs

The drop in startup valuations due to funding winter means a reduction in the real value of executive stock options. Although some buybacks still occur, the scarcity of VC funds and company underperformance have reduced them. While senior executives are waiting for the situation to improve, they are increasingly careful when choosing new companies to join

Source | | Debleena Majumdar, ET Online

In the midst of the ongoing funding winter, many highly valued startups are seeing a drop in their valuations. Let us look at what this means for senior executives who would have joined the companies with ESOPs as a key component of their salaries and with the expectation of creating wealth as the company grows.

While the value of the ESOP is notional till the company raises further money, lists on the bourses, participates in a merger or acquisition, or undergoes a similar value-creation event, many companies did buybacks of ESOPs during the funding highs of the past few years. This generated some wealth for employees.

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