The year founders’ equity clawback went mainstream

Weeks before logistics startup Delhivery filed draft papers for its $1-billion public offering in November, the company’s board ratified a new stock option plan. Previous stock options went to several key executives and employees, but the latest package, ESOP IV 2021, listed only one beneficiary: CEO and managing director Sahil Barua.

Barua launched Delhivery along with four co-founders in 2011. Since it competes in an operationally intensive space, it had to raise $1.3-1.4 billion in funding to reach a $3.4-billion valuation. But more funding rounds also meant more cuts in the shareholding of the founders, some of whom are no longer involved in the day-to-day business.

When Delhivery submitted the draft prospectus, or DRHP, to Sebi last month, Barua had a 2.19% stake in the company, including vested options. The new ESOP package will help him increase his shares in the company by at least 50% over a period of six to seven years.

There were similar arrangements in the IPO filings of Zomato, Policybazaar parent PB Fintech, Paytm owner One97 Communications and Freshworks as the boards of these companies sought to incentivise top management members.

The practice is also becoming common in private startups’ funding rounds, with more founders negotiating management stock option plans. The so-called equity clawback is part of a broader trend where FOMO is driving investors to offer more favourable terms to startups as capital has become a commodity.

The CapTable looks at the nuances of these grants and how investors are viewing them.