This small company’s Esops will make its housekeeping staff wealthy

Thomas Piketty would have approved of what Rahm Shastry has done. Shastry is the founder of DriveU, a rent-a-driver platform. The life trajectory of Kumba SK, a watchman at DriveU, is testimony to Shastry’s thinking.Kumba left Baadwala, an obscure village in western Nepal, on a rickety bus. He crossed the Himalayas and got down at the border town of Banbasa in Uttarakhand. An overnight bus trip from there took him to Delhi. Then he sat anxiously in the general compartment, enduring crowd, dust, cold and heat as the Karnataka Express that carried him lumbered along for three days to reach Bengaluru.That was how Kumba, then 18, joined his fellow countrymen who worked as watchmen, cooks, home helps, errand boys and housekeepers in the thriving tech city. Such jobs usually pay between ₹10,000 and ₹25,000 per month.A vast majority of the estimated 2 lakh Nepalis in Bengaluru work in apartments and shops. Only a minuscule percentage of them work in the organised sector. Even in those ‘organised’ sector jobs, the working hours are crushing, the pay is similar to that of the unorganised sector, and there are no benefits like medical insurance.But Kumba is fortunate. Apart from his salary, he has DriveU stock options. Among his countrymen, Kumba and his colleague Sheru Khatti are perhaps the only ones, in such jobs, who are beneficiaries of an employee stock option plan (Esop).Two decades since his cross-border migration, Kumba is sitting on a sum of money that could well be orbit-shifting for his family. DriveU, Kumba’s employer for the past eight years, has granted him 220 stock options. The stocks underwent a 1:10 split, which took his total Esops to 2,200. Each Esop is currently valued at ₹1,003.The wheel of fortuneIn short, in addition to his current monthly salary of ₹33,000, Kumba will have a fortune of ₹22 lakh once the DriveU Esops become liquid. DriveU has a plan to go public in the next financial year and the founders believe that the valuation of the company should double. The current share price was fixed at the last fundraise. They expect that the business will double by the time of the IPO. If the share price doubles, Kumba’s Esops would be worth ₹44 lakh at the time of the DriveU IPO.While Kumba knows he has some stocks and is happy about it, he hasn’t come to grips with the potential worth of his possession. The first man to come to and the last man to leave office, he doesn’t think too much about it.That is the case with housekeeping staff Vimala and office boy Khati too. Vimala was granted 47 stocks and Khati 80 stocks. After the stock split, they multiplied to 470 and 800 and are worth ₹4.7 lakh and ₹8 lakh, respectively. At the time of the IPO, they would potentially double, as mentioned earlier.Kumba, Vimala and Khati belong to DriveU’s 160-strong workforce, all of whom hold the company’s shares.Arguably, the last time a company distributed Esops so widely was Infosys, when even drivers of the company received it. medium116495352Thinking about equity, equalityWhen Rahm Shastry founded DriveU in 2015 with his son Ashok Shastry, he was clear that all employees should have shares. He saw how a wide distribution of employee stocks had created wealth for many people in Silicon Valley.Shastry had worked in and run semiconductor companies in the Valley for 34 years before returning to India as a startup investor. He wrote the first cheque for cab-hailing startup TaxiForSure (TFS). He had a rather quick exit with 40x gains for his ₹5 lakh investment when TFS was acquired by Ola in three years.After the TFS exit, rather than playing angel, the Shastrys got excited about building something that solved a problem plaguing urban mobility. Drivers’ growing disillusionment with aggregator platforms and the urban demand for chauffeurs on call were the initial triggers. But what they built did not really fit in with the venture capital (VC) scheme of things.On the periphery of VC-fuelled consumer internet, with modest funding from impact investor Capria Ventures, DriveU grew rather slowly but steadily. Until recently, it remained a lone player in the app-based driver aggregation space. Enduring VC indifference, the Shastrys built DriveU in a sustainable way. In FY24, it made a small profit on a gross revenue of ₹90 crore.The company primarily makes revenue from the customers who pay for hiring drivers on its platform. It follows an 80:20 split of the fare where the driver gets the larger share. A 50% year-on-year growth in revenue, stabilisation of costs and profitability prompt founders to unlock value for employees and investors through the public listing.All 160 employees together hold a 10% stake, which would be worth ₹35 crore currently. The Esop pool would increase to 12-13% and there could be a share buyback before the IPO, Rahm Shastry said. If all goes according to plan, the average worth of an employee's holding would be over ₹40 lakh. medium116495376The Esop wealth explosionThe magic of Esops suddenly catapulting people from their middle-class existence to a life of prosperity and opulence has something to do with Silicon Valley best practices and tech boom. The knowledge industry has placed a premium on human resources. In India, IT major Infosys was an Esop pioneer. It was the most successful such programme when Infosys launched its Esop programme. By 2000, it had 2,000 employees with over ₹10 lakh worth of stocks. This included drivers and office assistants.If Infosys started the Esop story, Flipkart built on it.Flipkart, the original poster child of the Indian startup story, showed the way for the new economy. At the start, Flipkart Esops constituted 11.5% of the total shares and covered the entire tech team and assistant managers and above in all other functions. At the time of Walmart’s acquisition of Flipkart, 5,000 current and former staff had employee stocks.Over the years, Flipkart’s Esop pool came down to 5% shareholding, but multiple rounds of buybacks have made employees richer. The company’s continuous increase in valuation also helped. The company launched a generous Esop buyback programme worth $700mn last year.With two dozen startups going public, Esops have become liquid for thousands of young professionals. For instance, the Swiggy IPO last month unlocked ₹9,000 crore for Esop-holding employees and 500 of them have shares worth ₹1 crore or more.Esop pools of most of the large startups are 5% of the shares and are kept for engineers and managers. While the IT sector and startups are relatively better in terms of Esops, the rest of the Indian businesses remain rather tight-fisted.A Grant Thornton study of the top 700 companies across sectors two years ago showed that only half of them had some kind of a long-term plan for stock-linked incentives. Only 248 or 35% of them had active Esop programmes. The average Esop pool size, according to the study, was just 3% of the total shareholding.In the case of startups, Cred has a programme that offers shares to every employee. It originally kept 15% of shares for employees and its current size is around 12%. Multiple fundraises diluted the Esop pool holding. Cred raised nine rounds of funding and is valued at $6.4bn. In small startups, only a handful of top leaders are entitled to stock-based incentives.That’s what makes DriveU different. It is one of the few companies that has ensured Esops for everyone, including the janitor, even though in terms of size, it isn’t a Flipkart. medium nocaptionhttps://youtu.be/lyMjN4oOOjc?si=TXiMx5-ABXQhN8CP‘Makes business sense’The ideals of shared ownership play a role in employee retention. “It makes business sense,” says Shastry.In employer review portal Glassdoor, DriveU enjoys a four-star rating and Shastry 100% approval rating as CEO. Two-thirds of its 30 staff who anonymously submitted reviews said they would recommend the company to others.For Shastry, employee satisfaction is one aspect. His biggest challenge from the start has been building a fleet of well-trained drivers. Despite steady efforts, the fulfilment rate is 72%. Three out of 10 people who book drivers are declined.He realises that driver happiness is as important as employee satisfaction, especially when competition is heating up in this segment, which has largely remained ignored until recently. Well-funded startups such as used car seller Cars24 and parking management startup Park+ have started driver-on-call services.Around 1 lakh drivers have signed up on the DriveU platform, out of whom 10,000 are active in any given month.Most drivers take up this as part-time work and become active on the DriveU platform when they are free from their main job. Half of the drivers earn less than ₹5,000 a month through DriveU, while an additional 30% earn between ₹5,000 and ₹15,000. It is roughly the rest 20% or 1,500-2,000 drivers who make more than ₹15,000 a month. Some 50 of them make more than ₹45,000. A handful among them make around ₹85,000.A couple of those drivers made it to the DriveU employee rolls. medium116495413A Sandalwood storyAkshay JD lost his job in the admin section of a travel agency when Covid struck. A performing artist, he tried his hand at acting and landed cameo roles in a film and a handful of serials. While trying to find his feet in Sandalwood (the Kannada film industry), Akshay relied on side gigs, including being a driver on call on the DriveU app.When intense rains hit Bengaluru and caused floods in June 2022, he drove to hospital a woman stuck alone at home while going through labour pain. He had hitchhiked on a tractor that was deployed for municipal waste movement to reach her heavily inundated location. He drove her Volkswagen Polo through mud and water to take her to a hospital, where she gave birth to twins.Akshay’s heroics reached the DriveU office through the driver community’s WhatsApp group. When the Shastrys met Akshay, they came to know that he has an MCom degree and is an off-road driver. They hired him for a role that examines the driving expertise of those who want to sign up on the platform. After a couple of promotions, he is now an assistant manager looking at quality assurance of driver services at the national level.From a 4.9 star-rated driver on the platform to a shareholding managerial staff at DriveU, Akshay’s career progress at the company didn’t have as many zigzags as the dirt tracks on coffee plantations in his native town of Sakleshpur.Shastry, who sports a ponytail and earrings, ran half a dozen enterprise tech companies in the US. But DriveU in his home country, what he calls his “last hurrah”, has given him the most joy. Half his wealth from DriveU would go to charity, he said.