Financial services firm, ESOPDhan, is looking to raise structured debt in the coming weeks to fund its business model of lending to employees of high-growth unicorns to exercise vested ESOPs.
So far, founders Shravan Shroff and Nitin Agarwal have funded the start-up, ESOPDhan, through equity.
ESOPDhan is planning to go for raising structured debt from investors and large family offices, once its current corpus is fully used up.
It has lent Rs 20 crore to 15 Bengaluru and Hyderabad-based employees of two US-based tech companies. In the next one year, it hopes to clinch similar deals with 10-12 more companies.
The company says its business model is "cushioned" amid market volatility, as it focuses on unicorns, and factors in two-year plus exit timelines.
"At present, our funding is primarily through the infusion of equity as founders, and later on we will fund it from structured debt," Agarwal told PTI.
Notable investments by Agarwal include Oyo Rooms, Exotel and FarEye Technologies, Wow! Momos, Aarav Unmanned Systems (AUS), Uniphore, Sugar Cosmetics, Vahdam Tea, Karza Technologies and Vista Rooms.
Personal investments made by Shroff include Oyo Rooms, Get My Parking, FarEye Technologies, Vista Rooms, Uniphore, Exotel, Aarav Unmanned Systems (AUS), Zip Dial, Karza Technologies, Rubix Data Sciences and Earth Rhythm.
The two founded ESOPDhan and injected Rs 30 crore into it; of this, about Rs 20 crore has been lent. While the idea is to first exhaust the funds that are available in the kitty, the company will soon go for the structured debt route to raise more capital for its business.
"We are not worried about the funding because we are sure we will be able to raise more funds as and when required... We will start raising structured debt in about four weeks," Agarwal said but did not specify the exact quantum of debt.
Structured debt is the preferred route for the company as the payouts to lenders will be structured as and when ESOPs are liquidated, Agarwal explained.
ESOPDhan, he said, is aiming at a Rs 500-crore loan book by 2025, helping more people buy stock options being offered by their employers.
At times, employees find it difficult to subscribe to ESOPs soon after vesting because funds are not available for paying the vesting price and income tax.
ESOPDhan has been working to solve that problem for employees, and in the process also facilitating a healthy employer-employee relationship. Exercising their stock options early helps employees with lower taxes on the sale of stocks, an attractive proposition for them, he said.
The vested ESOPs of Unicorns in India is over $10 billion, so there is a huge unmet demand, according to the company.
"As far as demand is concerned, we are not worried," he said.
With macro uncertainties rocking the market and the start-up ecosystem, the company will keep a sharp focus and only fund ESOPs by unicorns (with a $1 billion valuation and above).
Focusing on unicorns, offers ESOPDhan a certainty of an "easy exit" via the IPO route at some point in the future, on such funding.
ESOPDhan, a non-banking finance company registered with the Reserve Bank of India, deploys proprietary tools for making funding decisions.
The business started with ESOPDhan funding 5 India employees of Harness, a $3.70-billion valuation company whose platform helps companies accelerate their Cloud initiatives and roll out software developments faster.
The next set of 10 India employees that ESOPDhan funded belonged to Phenom, a US-based AI-powered HR-tech platform valued at $1.37 billion. Phenom enables identifying bright talent, helps candidates find the right job and optimises the HR strategy, process, and spending.
On the current stock market volatility deterring companies from going public, Agarwal said ESOPDhan's business model entails an exit after more than two years, giving the company enough leeway.
"Also we will not lend more than one-third the value of shares and that is another cushion for any downside," he explained.
