Become Millionaire From Job | ESOP Explained #StartupUnlocked - YouTube

In today's time, in the startup world, we are hearing a very common word, which we call ESOP's.

Esop's is a very good way for the businessmen to stop their well-talented employees and for the employees to become millionaires overnight.

So, today we'll talk aboiut ESOP's.

What are esop's basically? The full form of esop is Employee Stock Option.

Meaning it gives the option to the employees to take stocks.

Taking an example, let me explain, because of value, the valuation of my company is one lakh rupees.

And I have one thousand shares. So a valuation, divided by 1000 shares. So, hundred rupees per share.

Now I tell you, you join my company, you are very talented computer coder.You make applications

now you are inside a company, lets assume, you take 200 rupees.

I am doing all the calculations in very small way so that everyone can understand, I am not investing in lakhs of crores, it is okay. So talking in small.

So now because of the value, let's take a salary of 200 rupees. I told you to come to my company.

I don't have 200 rupees to give you, our company is not that big but, I will pay you 150 rupees, but along with this i'll give you ESOP's worth 100 rupees.

Means overall you will get 250 rupees,

But these 250 are not available, only 150 are coming in hand, I am giving you ESOP for a hundred rupees,

meaning I am giving stock options, You can own my stocks.

Now there are 2 ways to own this stock, many companies give it for free, many at a very discounted rate.

Now it's free, when your time comes to give esops, then I caught you , take esops of 100 rupees

What is the second option, I will tell you at a very discounted rate,

there is esop of 100 rupees, take it in one rupee. So you are paying one rupee, in return you are getting 100 rupees of stock.

promotion.....

Now there are some important terms, which are very important for us to understand before going ahead.

Now the first term comes, that is- Value of stock.

It is being known by the name like Value of Stock, that how much value of stock is being received.

So as we talked about in this example, we are getting a value of Rs.100.

Ok, now it is because of the honor that you have joined my company.

After 2 months some other competitor of mine comes, then tells you, brother, 250 rupees, I will give you 400 rupees,

I will give 200 rupees directly, I will give ESOP worth of 20, you left me and went there.

Now Logically, you worked with me for 2 months, so how much money should you get?

I am giving you 250 rupees, I am giving 150. I am giving Rs.100 esop.

Ok, 300 rupees so I have given you, 200 rupees you are getting stock option, you're not getting stocks.

So here's what the company does, to play smartly, they put up cliffs.

Cliff means if you leave before then you will get nothing.

Meaning if you leave our company before one year,

then we have given a guarantee of esops right, it will not be available.

If you stay after one year, then after one year whatever you have to meet, you will get it.

So what do normal companies do to acquire the best talents,

let's assume, the same company has a valuation of one lakh. Now all we need a coder, a best one,

We are a startup.

So I hired one and I told him that I will give you 5000 ESOP's,

5000 rupees, 1 lakh is the company's value, so in a way I gave 5% of the company to him.

But what I told him, 5% is not giving directly, you are not getting 5000 esop's directly,

you will get first year, then you will get second year, then you will get third year, then you will get fourth year.

So, after every 12-12 months, I will give it to you.

And, every 12-12 months I can divide, of my own free will.

So it is called vasting, how the money is being divided.

So how can I share the vesting?

So, the good companies are 25-25-25-25,

first year 25, then 25, then 25 then 25.

Now there are many companies which no, I have to hold the employees,

now this is an asset for me. I don't want to leave

So, the company says, in the first year, I will give 10%,

then you take 20%. Then take 30, then take the rest. There is no problem.

So, the same will be shown to you in the overall package.

Well, look. May I am giving this much esop, it will be visible inside your package.

And overall C.T.C will look bigger. So you will feel that you are getting a lot of money.

But in hand, money will be getting less.

Now what many companies say, my employee should leave me in 1 year,

I have no problem. But it has to be squeezed in the first one year.

What will they do, they will give you 40% in the beginning itself,

first year, 40% . Gives company to company, how much is called to give.

He made it heavy in starting, gave a lot in starting, then slowly kept on reducing,

Some companies say that, many companies give a cliff order of even 3 months

that you come, work for 3 months, you will continue to get esop's every 3 months.

ideally, I believe to keep atleast one year. Keep the first one year old, then at 6-6 months.

It is your choice, how you have to make company policies.

So, we understood 3 things, Value, Cliff and vasting.

Now this is a very important term, which will open your whole concepts, which is called - Exercise period.

Exercise period means, whenever you leave my company, after that I will give you a specific time,

within which you can transform your esops, into shares.

I said, these are not shares.

There are ESOP's .

Means you will have to convert that compassion into shares.

If you convert, then you will have to pay tax, whatever your tax slab is,

for example, let's go by saying the same thing,

If you get 5 thousand esop in one lakh, then you did not vest he first year, second year, third year, fourth year,

When you are leaving for the fourth year, you leaving for the fourth year,

You say it's okay, now I am from here, The company has grown a lot, I have also grown a lot, Let's sell my shares,

Here the company will give you a time, that you have only 3 months to stick. You have to convert all the money in 3 months.

Now what is the meaning of converting,

lets assume, now you've 5 thousand, So whatever you will feel above 5 thousand, because this is your income,

you have not paid any money for this income, then you have earned 5000 directly,

Whatever tax is made on it, that will be made.

You are getting 5000 small numbers here, this tax slab does not come,

but the overall company, it gives lakhs of rupees in the vesting period of 4 years.

Means coders have become, for example. One person is getting 30-40 thousand in-hand,

and he is getting lakhs of rupees in the form of esops.

one lakh per month , turned of year, 12 lakh. Turned 4 years old, 48 lakhs.

48 lakh plus the value of the company will also increase.

4 years you will work in a company, then the value of the company will also be multiple,

then it can be 48 lakhs, your 70-80 will reach even one crore,

Then your tax slab will be applicable. Logically, you have to pay tax.

So you have 3 months time after leaving the company that you can get esop's exercise after 3 months.

Otherwise, the company will eat your esops.

So, you have come because you understand what esop is. How is it for the employer, how is it for the employee. Everything made sense.

Now look, there is a direct benefit of the employer, that he is giving you stock, no one has money with him.

If he has got money, if funding has come. So, only giving you money would be preferred.

Or else he would like to give you stocks because, He will feel that you have value,

you can turn out very well in the long term.

So I am giving you my share, I am saying that you should keep your share too,

keep your money and put your life in my company.

So that you also grow, our company also grows,

So if someone shares the shares of a company, he will work hard,

because he knows, if I work hard, then the company will also grow, if the company grows, then my money will also be multiplied.

It becomes crores of rupees, small amount pf esops.

Because you see startups, the value of startups increases very fast.

Nowadays such startups have come which are going to earn billion dollars within a year.

It may mean that employees have been reduced to 2% in starting.

in 2 months, And the company is valued, one billion dollars. How much is 2%?

An employee earned so much money within a year.

So, the benefit of the employee is that if he believes in the company, that the company will grow,

and he feels that he joins, So that too without investing his money,

What's the point of without investing your money?

Here, the entrepreneur who is the owner, who is the founder, has the idea, he is getting you executed,

the money is being spent by him, he is doing all the funding, funding, raising, whatever efforts he has to do,

You have got shares, the company is growing, you are getting money.

So, overall hard work is being done by everyone, and you are also getting benefited.

There is a very big thing here, which many people do not understand,

esop, there is only a piece of paper.

May be at present time, I formed a company,

Will set fire inside a company, we will give this order, we will give that order. I called you, come.

Now i'am assuming big numbers, real life numbers,

let's assume , you were taking salary of one lakh in some company. I tell you your age is 24-25 years.

Your expenses are not much, take 30 thousand, and I am giving you 2 lakh esop, come you work with me.. You have to work with me

You worked with me for a year, we woke up and worked hard,

Like you I had held many people,

May 30-30, was giving 20-20 thousand rupees to everyone, 2 lakh rupees was my monthly expenses,

2 lakhs, I worked hard for a year, after one year my product did not work.

I closed the company.

How much did you get?

You get the salary you got, now the value of the company is zero, it is over.

So the value of your esop is nil.

So esops is good, good for those company, which can grow.

First thing,

second, I'm bootstrapped,

I didn't plan that I'd ever raise funding. Never have to take out I.P.O,

I thought that whatever profit comes, I will take it home, I will keep it, I will do it like this.

I gave you the esops.

What will you do with esops until somene buys it?

let's assume, you own 5% of my company, you own 5% of Lapaas

Now no one is buying inside the world, your shares,

So what will you do?

I said that I have not put any rule above 5%,

I do not listen to my minority shareholders, anyone, anywhere you sold your shares,

It is not going to get anything.

I neither give him money, nor do I allow him to participate in the company, nor do I do anything.

then what will happen?

So its value again is nil.

So, such companies which are not raising, Or those who do not have a plan to go to theIPO,

their ESOP is also NIL.

Ok?

From both the sides, that, you should have clarity of ESOP's , how ESOP's work.

I hope you will have fun, you must have understood everything.

I have kept the example a little easy, so that you can understand.

May be, people face some problem in calculations.

If there is a problem with the calculations, don't worry

Watch the video again, watch it again, calculate it on paper and try it.

Everything will be understood.

And with this the video also ends,

I hope you enjoy

And you must be enjoying this series,

This has become third video, of this series.

So if you haven't seen the last 2 videos, then go watch it.

This is going to be a very detailed video of startups, where you will get to learn a lot.

Bye, good night, Shabba Well. khuda hafiz.

good morning, good afternoon. whenever you're watching the video.