In Order to Increase Liquidity in the ESOP Market, Hissa Develops a $35M Fund

With a $35 million corpus, equity management platform Hissa has introduced Hissa Fund I to give the Indian employment stock option plan (ESOP) market liquidity. Established as a SEBI-registered Category II Alternative Investment Fund, the company would seek to invest in 15 to 20 companies in the development stage and collaborate closely with the founders to offer liquidity to support talent retention and business expansion plans. The fund's target ticket size for each company is between INR 8 crore and INR 10 crore. Employee stock ownership plans, or ESOPs, provide staff members a stake in the business through share ownership. These options, however, are only exercisable upon an IPO or acquisition.
Reason Behind the Move
Businesses are taking longer to require public assistance as more and more capital enters the private markets, claims Satish Mugulavalli, a partner at Hissa Fund. Employees now own illiquid firm shares for extended periods of time as a result of this. This deficit will be addressed by the new fund. Hissa thought it was a little unfair that those who are assisting in the development of these businesses are unable to reap the value created due to a lack of liquidity. As a result, the business introduced a liquidity product that allows founders to supply periodic liquidity without having to wait for an exit. "Business owners are seeing some sort of liquidity happening in the middle," Mugulavalli told a media outlet, "but the big liquidity will happen at the end (through an IPO or an acquisition)." Founders, high-net-worth individuals (HNIs), and family offices that have previously made investments in startups make up the majority of the fund's limited partners (LPs). But according to Mugulavalli, it was too soon to reveal these LPs' names.
Following the FootSteps of VC Fund
Like any other VC fund, Hissa will have stock selection criteria. It has valuation requirements that must be fulfilled and is aggressively seeking Series B companies. The startup's offer will be based on the company's most recent valuation, but like all financial assets, the asset may be valued at a premium or a discount, depending on the business. It can cost more if the business is doing really well. However, that is a choice that is made at that particular moment. 'However, you'll be anchored by the company's most recent major funding round", Mugulavalli stated. By the conclusion of the current fiscal year or the first quarter of FY26, the fund intends to fully distribute the entire amount.
The fund has several choices to exit a business because ESOPs can only be activated in the event of an acquisition or if the company files to go public. Given that it does not own a sizable stake in the business, the fund may retain the shares until the firm goes public or is bought, or it may sell them whenever a major fund makes an investment in the business.

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