Founder stake in unicorns slumps

Unicorn startups have seen a sharp fall in stakes held by founders, leading to concerns that the latter may have very little skin in the game.

According to a Tracxn data, the median stake that founder groups hold in their unicorn startups has reduced to about 12.5% this year, from 26.15% in 2018. This is as per the data for about 65 privately-held startups which are valued at or more than $1 billion.

Dilution was common for publicly-listed companies as well. Deepinder Goyal, co-founder and CEO, Zomato, has reduced his stake in the food tech company to 4.32% as of the October-December quarter, down from 4.71% he held in the July-September quarter of 2021, according to stock exchange filings. Just before the IPO, in July 2021, Goyal owned around 5.6% in Zomato.

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Again, Sahil Barua, CEO and co-founder at Delhivery, now holds a mere 1.79% stake in his logistics business, down from an already low share of 1.85% that he had in the June quarter of 2022. Pre-IPO, Barua held about 2.19% in his company, according to the firm’s DRHP. In total, the co-founders of Delhivery now hold around 4.8%, down from 6.97% in May 2022 when the firm went public.

However, some others like Falguni Nayar and her family still hold a high 52.34% of Nykaa, a marginal decline from the 52.56% around November 2021. Before Nykaa went public, Nayar and her family held around 53.5% in the beauty and fashion retailer.

Anand Lunia, founding partner, India Quotient, which has backed startups like Sharechat. believes the end game, of having a low stake, is that either the startup becomes a zombie company and nobody cares anymore. “Or you are valuable, you get bought out by a giant, but founders do not have enough ownership and lose control in a bad way,” he said.

Mayank Kumar, co-founder of UpGrad, an edtech unicorn, said that it was “extremely difficult” for founders to ensure they have skin in the game when their ownership is low. “In this whole go big or go home push, founders put everything on the line and in that process, their shareholding reduces significantly. After that, they’re as good as an employee,” he said.

However, there are some founders who are considering buying back shares to raise their personal stakes. Byju Raveendran, co-founder of Byju’s, is reportedly trying to increase his shareholding to 40% from about 25% currently. Similarly, Vijay Shekar Sharma, who held 8.89% in Paytm at the end of the March quarter last year, has increased his stake to 9.13% currently, nearing his pre-IPO ownership of 9.6%.

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Sharma’s buyback exercise, however, drew the ire of retail investors and others. He announced that he would be buying back shares at a maximum price of justRs 810 apiece, over 60% lower than the price band ofRs 2,080-2,150 sought in the IPO.

(Kishor Kadam contributed to this story)