Urban Company, partner create open-source ESOP framework for startups

Urban Company, India and the UAE’s largest tech-enabled home services marketplace, has open-sourced a specially crafted ESOP (employee stock ownership plan) policy for startups in collaboration with MyStartupEquity, a platform of venture capital firm LetsVenture.

Urban Company, which is backed by Accel Partners, Ratan Tata, and Flipkart CEO Kalyan Krishnamurthy, said the framework is available free. With ESOP implementation generally being a tedious process, the framework aims to guide startups and other companies on structuring terms and conditions.

Abhiraj Bhal, co-founder of Urban Company, said the firm has created value for its employees through ESOPs, conducting three secondary sales in less than six years for existing employees worth nearly $8 million.

“We believe a robust, employee-friendly ESOP programme is one of the pivotal pillars in attracting and retaining talent and building team morale,” said Bhal. “We now want to extend this framework to budding entrepreneurs and lend a helping hand in their entrepreneurial journey.”

The framework can be used and modified by companies or startups while building their ESOP policy. This framework is a legally vetted document and the cornerstone of the policy is having simple vesting terms, a reasonable exercise price on options and a generous exercise period. The framework also comes with easy to use templates for grant and exercise letters.

Sanjay Jha, co-founder and chief product officer at MyStartup Equity said, talent is the most important growth driver for a startup. Therefore, he said it’s not only important to attract top talent but also to retain and reward them.

“We have seen ESOPs play a very important role here,” said Jha. “This ESOP framework helps startups in India adopt not only an employee-friendly policy but also addresses the interests of the company’s side as well.”

Urban Company, in six years, has conducted three secondary share sales giving its employees a benefit of about $8 million. The company’s last ESOP secondary sale was held in August 2020, when 180-plus eligible employees participated and each ESOP was valued at Rs 110,000.

Under the new programme, employees have the option of liquidating their vested ESOPs on friendly terms. These include an exercise price of Re 1, accelerated vesting, a flat 4-year vesting schedule (25 per cent each year) and an infinite hold period to exercise the ESOPs after the employee exits the company.