TL;DR – The Quick Version
Most Indian startup employees believe they have three options for ESOP Liquidity in India:
1. Wait for an IPO,
2. Buyback, or
3. M&A.
There is a fourth option most employees don’t know exists – employees selling their vested and exercised shares to a dedicated ESOP secondary fund before any liquidity event occurs.
Table of Contents
Why ESOP Liquidity before IPO is the Biggest Unsolved Problem in India's Startups
India’s startup ecosystem has created an extraordinary amount of employee wealth on paper. Hundreds of thousands of startup employees hold vested stock options worth millions. The problem is converting that paper wealth into real cash and navigating the perquisite tax that comes with exercising options.
IPOs are delayed. The average Indian startup takes 10–12 years to go public. Buybacks are infrequent and not guaranteed. Most employees wait years, sometimes indefinitely for a liquidity event that may never come on their timeline.
The 4 Ways to Access ESOP Liquidity in India
Way 1: IPO – Most Visible Exit, Least Certain
When a company goes public, employee shares become freely tradeable. But India’s market is unpredictable. Companies that plan to go public in two years often take five. Even when an IPO happens, a post-listing lock-up of 6–12 months typically applies before employees can sell.
Best for: Employees at late-stage companies with a confirmed, near-term IPO pipeline. Everyone else needs an alternative plan.
Way 2: Company Buyback – Most Common Interim Option
The company purchases vested shares directly from employees. This is the most common form of interim liquidity in India today.
Secondary during a funding round
During a Series C, D, or later round, incoming investors sometimes purchase existing employee shares alongside the primary investment. This is not guaranteed, it depends on investor appetite and whether founders want employee liquidity included in the round structure. When it does happen, it is one of the most efficient paths because the pricing is set by the round itself.
The limitation: Both buybacks and secondary-during-round transactions are entirely at the company’s discretion. They require board approval, investor alignment, and financial capacity. If your company has not historically run buybacks, you cannot plan your financial life around one happening.
Best for: Employees at companies actively raising growth-stage rounds where investor appetite for secondary purchases exists.
Way 3: M&A – Full Exit, Still Rare in India
When a company gets acquired, the acquirer typically purchases all shareholders, including ESOP holders. In a cash acquisition, employee options or vested shares are paid out in cash. In a stock acquisition, employees receive shares of the acquiring company. If the acquirer is listed, those shares can be sold on exchange.
This kind of clean, full-cycle liquidity event is still relatively rare in India. There are only a handful of notable examples such as Zomato acquiring Blinkit, or CRED acquiring Happay – where employees meaningfully participated in the outcome.
Way 4: ESOP Secondary Fund – Independent of Liquidity Events, Not of Founder Action
A dedicated investment fund purchases employee shares directly — without requiring the company to run a buyback programme or be in the middle of a funding round. This path exists regardless of where the company is in its journey toward a listing or acquisition.
The important distinction: employees do not self-initiate this process. The founder or company still opens the door. What changes is that employees have a defined path to raise the conversation, and the fund can move without the constraints of a funding round or a formal programme.
How it works:
- The founder whose employees have vested and exercised shares contacts the fund
- The fund evaluates the company and agrees on a price per share
- The employee sells some or all shares to the fund
- The employee receives cash, typically within weeks
- The fund holds shares until the company’s eventual exit
Hissa’s $35M ESOP Secondary Fund is India’s first dedicated fund built exclusively around employee equity transactions. Learn more about how Hissa ESOP secondary fund works and current eligibility criteria.
Company-Initiated vs Fund-Initiated ESOP Liquidity: The Key Difference
| Company-Initiated | Fund-Initiated (Hissa) |
Examples | Buyback, secondary during round | ESOP secondary fund |
Who controls timing | The company | The company |
Requires company approval | Yes | Yes |
Requires funding round | Sometimes | No |
Available at any stage | No | Growth stage, post PMF (subject to criteria) |
India example | Swiggy, Flipkart buybacks | Hissa’s $35M ESOP Fund |
Most employees are only aware of company-initiated liquidity. The secondary fund route gives employees a defined path to raise the conversation with their founder — even when no programme is currently planned.
How to Know Which Stock Option Is Available to You
Step 1: Check if your company has run buybacks before — a history of buybacks predicts future ones
Step 2: Find out when the next funding round is expected — a secondary component may be possible
Step 3: Check your grant letter for transfer restrictions or right of first refusal clauses — these determine whether you can transfer shares at all
Step 4: Calculate your capital gains tax position – 24-month threshold for LTCG at 12.5%
Step 5: Speak to someone who works in ESOP transactions regularly before proceeding
Tax When You Convert ESOP Shares to Cash (Liquidity)
- Held less than 24 months after exercise: Short-term capital gains taxed at your income slab rate
- Held more than 24 months after exercise: Long-term capital gains taxed at 12.5%.
The perquisite tax paid at exercise is a separate event and is not affected by when or how you sell.
Practical planning point: if you exercised recently and are considering a sale, check whether waiting to cross the 24-month threshold reduces your tax bill. For large gains, the difference between STCG and LTCG rates can run into lakhs.
What's Changing in India's ESOP Liquidity Market (Share to Cash)
Indian startups distributed over $150 million through ESOP buybacks in 2025 alone, across 12+ companies. Three structural changes are accelerating the market:
- IPO timelines are lengthening
Companies are staying private longer. Employees cannot wait indefinitely — driving demand for structured interim liquidity solutions.
- Employees are becoming more financially sophisticated
The generation of startup employees who joined between 2016–2020 are now approaching 8–10 years of tenure. They understand their equity and are actively seeking liquidity rather than waiting passively.
- Dedicated secondary funds are entering the market
India now has structured infrastructure for growth-stage employee liquidity that didn’t exist five years ago. Hissa’s $35M ESOP secondary fund is part of a broader shift toward a more liquid private market for startup equity.
About Hissa
Hissa is India’s most comprehensive ESOP platform. Hissa combines equity management software, India’s first dedicated ESOP secondary fund – serving founders, employees, and investors across the Indian startup ecosystem.
