[Editorial notes: The below article is a real life incident of a few individuals who worked for a  startup which became a national brand, gave the company more than 14 hours of their daily life, believed in ESOPs; but only to get cheated. We have masked the names of companies and individuals for anonymity purpose, but certainly hope that these incidents are few and far in between. If you are a startup employee who has faced similar issues, do connect with us at : team@NextBigWhat.com]

Hundreds of early Indian employees of blue chip giants like Infy are multi millionaires today, and thousands of others (some at Startups) are also well off – all thanks to their Stock Options given to them when they joined.  Sadly these 4 employees of a startup were not so lucky. They slogged for 14 hours a day hoping for financial security, but it turned out to be a pipe dream.

Here is how it happened…

Some Years Ago: Four early employees of this well known Startup were invited to the CEO’s office to sign a very important document that was to be handed over to them. It was the Stock options agreement made between the Company and them, E1, E2, E3 and E4. They were one of the first members of the team to join this Startup from India. Started from a spare bedroom, the startup was becoming very popular.

ESOP OR Corporate Fight?

ESOP OR Corporate Fight?

It was a time of great upheaval in India and all over the world. The working condition was tough and time was erratic but they stuck on because they believed in the founder’s vision.

After a year, the Management happily announced that these early 4 employees will be given stock options and these 4 early employees would be able to purchase the shares at a very low rate of 5 cents and cash it later when the company has grown big. Thousands of shares were given to them and they treasured and kept these documents safe inside.

Many of them had dreams of buying a house, car or just retiring from work to pursue our other interests. The management told these early employees that they were privileged to receive the shares and that they would definitely retire rich.

A few years later:   The Company had grown big and they had shifted office after office, looking for more space for the growing team. They were still paid modest wages and the work time was erratic and worse the pressure was double. Many of them got great offers to work within India and abroad. But they were cajoled, discouraged and baited with the so-called stock options, which was getting worthier with every passing year.

The Company grew:  E1, a very senior member of the team was the first to leave this online Company. Her shares had vested. She had refused many good offers during her tenure, with four times her salary in at the Company.

This period saw the departure of many old members of the US team. And simultaneously many software programmers also left the company pursuing greener pastures. The core software team that comprised of the oldest members of the Team in India were asked to return their share papers when they left.

The Company received second round of funding and the salaries were increased, but still lesser than what they would get from another company.

They were happy and hoped that it would become big enough for somebody to buy it over or merge it with another company. Either way they thought they would retire rich one day. Many offers came by to them from many well-known dot com companies. But they were reminded of the stock options at every point and told that “Why would you want to leave now when you can get lakhs of rupees if you stuck on for a few years?”

Another Exit of Core Team:  E2 was the second one to leave the Company. E3 and E4 stuck on slogging hard and hoping to exercise their shares. E3 was the next to leave after her shares got vested. E4 held on saying no to many good offers. And once when he almost made up his mind to leave the company for a better offer, the founder dramatically pulled out his copy of E4’s stock option document and said that each share was worth Hundreds of Rupees.

2012:  All 4 of these early employees were out of this Startup which had become a National name by now, but they never stopped hoping that we would get something for those shares.  It had grown bigger than ever and has been doing really well. Many told them to stop hoping and stop dreaming. Many told them that those share papers were worth nothing but they defended the founder, in their conviction that he was a gentleman who would not go back on his promise.

August 2012: The stock option agreement that was given to them had an expiry date on it, Sep 1, 2012. And given the fact that the current share price was substantial, they wanted to exercise the options. Minding the expiry date, all four of them sent mails to the Founder on this week, asking him about the Stock Options. They all got a nice warm mail from him inquiring about our well-being and that we need to contact his lawyer as he is dealing with Stock Option inquiries.

Within the same week, they contacted the lawyer.

August 8 – 14, 2012:  They promptly scanned the stock option documents and sent the details to the lawyer with details of our employment and tenure in the Company. One of them even called the lawyer to basically get an update on what the deal was and how he was going to proceed. He was very friendly and open to chat with and he put forth three options that were open to the 4 –

– They can pay and buy the shares that we were given for 5 cents. In which case they will need to pay the Company the money to get the shares in hand.
– They can sell the shares to the Company for a fair market value minus the amount that they must pay them to buy the shares
– Or they can opt for a cashless option where the Company gives us updated documents minus lesser number shares for the amount that we owe them.

The Lawyer promised to talk to the Founder and the investors about our claim and get back to them within a week.  They were very upbeat about this and were actually hoping that something might come out of it.

August 15 – 21, 2012: They did not hear anything from the lawyer or the Founder. They waited for a whole week before sending in queries for update.

August 22 – 28, 2012:  All of them got a reply from the lawyer saying that according to their “.. Stock Option Plan” the employees can exercise their options within 3 months of their termination from employment. And since it has been many years since they left the company the 4 cannot exercise these options.

Outraged, they searched their agreement for this clause but it was not there. So they asked the Lawyer for more clarifications and he sent across the ‘.. Stock option plan’, a pdf document that they saw for the first time in their life. Their agreement was supposed to have been drafted along with this plan. But then the plan was conveniently concealed and not shown to them and nor was the important clause of 90 days period from termination included in the agreement.

To say that they feel cheated would be a terrible understatement. They were given these options and asked to consider it as a ‘money plant’. They were told that the Startup may not have enough money to give you now but when this plant grows you will have enough to retire rich.

After giving the many productive years of their life to this Startup, the four feel that at the very least they need to expose and fight for what was promised to them once. As such they have nothing to lose, so grouping together as a team to resolve this by asking for help from the startup community.

[The article has also been produced at Techgoss.]