Razorpay offers to buy back up to $75 mn worth of Esops

MUMBAI: Tiger Global-backed Razorpay Inc., a provider of online payment and lending services to businesses, has offered to buy back stock options worth up to $75 million from 650 former and existing employees, said chief executive officer and co-founder Harshil Mathur.

The secondary transaction will be financed by Lightspeed Venture Partners and Moore Strategic Ventures, who will join the company’s cap table with this round. The employee stock options will be bought back at a 14% discount to Razorpay’s December 2021 valuation of $7.5 billion.

Employees own common shares of Razorpay, while the company’s Series F primary round in December saw investors subscribing to “preferred shares”.

“There is usually a delta between common and preferred shares,” Mathur said in an interview.

Up to 650 former and current employees, some of them as young as 22, will be able to sell up to 30% of their eligible vested stocks.

However, not all employees may subscribe to the employee stock ownership plan (Esop) buyback programme. In the past three years, 30-35% of eligible employees of Razorpay were found subscribing to buyback programmes.

Early-stage angel investors will also sell their shares in this round.

“We will have 100s of ‘crorepatis’ (rupee millionaires) in the company,” Mathur said, of the employees who will tender their shares in the buyback programme.

He did not disclose the number of employees who are 22 years old and who will turn rupee millionaires following the Esop buyback plan but said that several are under “under 30 years old”.

Razorpay’s valuation has soared from $400 million to $7.5 billion during the last two-and-a-half years following increasing investor interest amid a pandemic-induced boom in digitalization.

“The last two years have been challenging for each one of us, and despite the challenges, our Razors stuck together and collectively guided the company through massive growth,” Mathur said.

The company said that the Esop buyback was a “way to give back” to its employees.

Razorpay currently has 1,940 employees across levels who have received stock options, according to the company.

The company held its first Esop buyback in November 2018 for 140 employees. The second and third Esop buybacks were conducted in November 2019 and March 2021, during which 400 and 750 employees, respectively, were eligible. Last year, the Esop buyback was worth $10 million.

In an interview, Aditya Sharma, partner, growth equity at Lightspeed Venture, said the firm’s thesis is that Razorpay would be the “proxy or the rails for digitizing the country”

“We’ve known the team for a very long time, and admittedly, it is one where we wish we’d invested before and we regret that we missed it,” Sharma said.

According to Sharma, Razorpay had differentiated itself through its high success rates for payments, by building the best technology platform and by integrating directly with other payment networks such as Visa and MasterCard.

“It has gone deep within the enterprise segment by providing solutions around data security, analytics, checkout solutions and payments orchestration,” Sharma said.

“After figuring out enterprise payments, they decided to dive deep into SME payments and broader workflow related solutions. Their SME platform includes tools around payroll, pay-outs management, tax, integrated partner ecosystem and other solutions to help SMEs manage their business. After that, they built out their neobanking business and are providing current accounts and facilitating credit cards to their enterprise and SME customers,” Sharma said, explaining the firm’s rationale for the investment.

Meanwhile, Razorpay’s Mathur said the company grew its revenue more than 300% to about ₹1,000 crore in 2021. The company has cash reserves of about $500 million and does not plan to raise capital for the next 12–18 months.

Most of the cash reserves will be earmarked for acquisitions. The company is looking for acquisitions in business-to-business, fintech and cross border payments, Mathur said.