Unlocking Liquidity with Qapita

Written By:
December 20, 2023
Unlocking Liquidity with Qapita

As ESOPs become a common form of compensation, the challenge lies in providing employees with the means to unlock the value of their vested options. Employees are more informed and more invested in the way they are compensated and are becoming more open to non-traditional compensation avenues. Companies have the additional challenge of not only providing equity but also giving enough information for the employee to make an informed decision. Things become tricky as they scale. In this blog, we explore the challenges in running liquidity programs and see how Qapita helps solve these challenges.

What are the challenges faced when running a liquidity event for a private company?

  1. As ESOPs become more and more common as a part of employee compensation, employees have no means to liquidate their vested options until the company goes public which can take a long time. Liquidity programs give employees to cash out their holdings.
  2. In this day and age, a diverse workforce is common. You can have employees from different countries who fall under different tax jurisdictions. Tracking the tax to be withheld for different participants becomes difficult to manage.
  3. Running a liquidity event for 50-100 employees is not an easy task. Each employee can be part of a different plan, or grant and can have multiple vests all of which have different vesting schedules. In addition to time-based vesting, employees can also be given ESOPS based on the milestones they have achieved. Having to manage all this through Grant Letters and spreadsheets is cumbersome.
  4. Grant Letters and ESOP Policy documents are not engaging enough for the employee to understand how wealth is created. Moreover, a company that has a system for providing liquidity opportunities is seen as a positive sign for the employees as well.

What are the steps involved in running a liquidity event?

Companies award employees with ESOPS. The exercise price and the vesting schedule are outlined in the grant letter. Vesting can be time-based as well as performance-based. Once the options get vested, employees can either surrender or exercise their options. The employee shows his interest in participating in the liquidity program by signing a surrender form in case of a surrender or an exercise document in case it's an exercise. After signing the documents, employees are given the proceeds as a part of their salary. In the case of exercise, the shares are then given to the employees. These shares can then be transferred to the company shareholders or other stakeholders.

I have never run a liquidity program before for my employees. How does Qapita support me?

Depending on the type of liquidity event you want to run - exercise of options or surrendering them, or exercising them and transferring them to different stakeholders,

  1. Customizable Program Parameters: Qapita’s Liquidity platform allows you to set up liquidity events as per your needs. This includes setting limits on who can access, how long can they access, the frequency of the liquidity event, and configuring the tax rates applicable for employees. You can also define participation limits for your employees. (Read more on ESOP taxation here)
  2. Real-time reports of employees who have participated in the liquidity program: You can track the employee progress at all times individually or for your entire employee cohort.
  3. At Qapita, we understand the importance of effective communication and engagement which is why at every point the company administrator running the liquidity event is notified at every employee milestone
  4. Any time there is change in equity - either by a funding round or by issuing shares to your employees, the equity distribution must be updated on the captable. If you are an existing customer on our equity management tool, this is automatically updated once your employees exercise their options.
  5. Documents and disclosures are shared among the eligible employees and signatures are collected electronically. You can download all your employee collaterals in one place- payment proofs, surrender/exercise documents, and any other additional documents that you might have asked for from the employee.
  6. The liquidity program can be tailored to your company's needs - if you want to enable your employees to pay the exercise amount and the tax online, we have online payment gateway services which we provide as an add-on. If you want to run an exercise program where the company covers the amount, the platform supports that as well.

In case you want to know more about how Qapita can help you, please reach out to us. You can book a demo here.

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