Wealth Management

Investment Trend Alert: An emerging market for employee shares in unlisted companies

May 2019

Read Time: 4 minutes

In the early 1990s, the stock market acted not only as a primary source of financing to new businesses, but was one of the key avenues for the investor community to allocate capital. There has been a significant shift in this situation for both parties, especially over the last decade. 

Today’s entrepreneurs can access funding from a diverse set of investors, both private and institutional, at each stage of their business, with each investor set having different risk and return objectives.  This has led to a significant increase in private market investments in India. The total number of active players in the Indian private equity sector, including institutional and private investors, jumped by 60% from the period 2012-2014 to 2015-2017, according to Bain & Co’s India Private Equity Report 2018. The report also noted that competition for private assets was increasing, and that private investors or LPs were making more direct investments in unlisted firms. 

Our experience at Avendus Wealth aligns with this finding. Private investors are indeed constantly looking for exciting opportunities in the unlisted space and are not shying away from directly investing in these companies. 

As a result of all this, many high-quality businesses are choosing to remain private for longer, and several private businesses are raising capital only from private markets.  

For example, Oyo Rooms and Delhivery, both firmly in the unicorn club (>USD 1 billion valuation), have time and again raised funds from institutional investors, most recently from Softbank, Sequoia and Carlyle. Ethnic retailer Fabindia, which was backed first by Wolfensohn Capital Partners and later funded by L Capital, is now a portfolio company of homegrown family office PremjiInvest. While many of these companies are growing at an exponential rate, public market listing is not on their radar yet. 

As companies choose to remain private for longer, gaining access to their unlisted shares has become more challenging. Also, the dominant presence of institutional investors on the cap table further elevates the access issue. Private investors, even if they do obtain access, are often unable to participate in these transactions owing to large “minimum ticket sizes”. 

This problem is now being addressed by a new market that is slowly emerging in India– a secondary market for employee shares in private companies. This entails purchasing shares owned by employees of private companies, who have chosen to sell their vested and converted Employee Stock Options (ESOPs).

Key differences between primary shares and ESOP shares 


Primary market

ESOP market



Relatively easier

Ticket Size

Large cheques preferred

Smaller (INR 2-5Cr) cheques entertained


Driven by lead investors

Based on last round of funding



Minimum rights as common shares



Generally, freely transferable except competition

Profile of investors

Large institutional investors

Known to the founder or a family / investor that can add value

Purchasing secondary market shares could be a relatively easier way for investors to get exposure to a privately held company. 

This solves multiple problems in one go:

  1. Addresses the temporary liquidity problem for current / ex- employees, as they get to take some money home.
  2. Helps diversify the capital base of the company.
  3. Serves as a small test case, if the company has plans for listing in the future. It is a win-win for all stakeholders involved.

Recent examples of the sale of employee shares in unlisted companies in a secondary market transaction include IndiaMART, Flipkart, Policybazaar, Nestaway and ICICI Lombard. We believe this is just the beginning and the emerging trend of secondary share sales in private companies could become mainstream very soon.

The Avendus Wealth Private Markets team actively curates opportunities that can provide good returns within a holding period of 1.5 years to 3 years for investors. For this, the team engages with the entire ecosystem of private market participants, including private equity and venture capital firms, and private investors such as family offices and UHNWIs. 

To know more, please write to us on wealth.updates@avendus.com

Author: Arvind Bansal, Executive Director and Head – Products and Advisory, Avendus Wealth Management

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