Why are Indian startup founders buying back shares in their companies, while public company promoters are cashing out?
Right now, promoter stakes in listed companies are at a 5-year low, yet some startup founders are doubling down on their ownership.
Here are a few recent examples:
- Rajan Bajaj (Slice): Invested about ₹70 crore to increase his stake in the company.
- Vijay Shekhar (Paytm): Bought $628 million in shares from AntFin in 2023 and added another ₹11 crore in 2024.
- Ritesh Agarwal (OYO): Through his Cayman-based firm, he acquired ~$2 billion in shares in 2019 and an additional ₹830 crore this year.
- Gaurav Kumar (Yubi): Purchased shares worth ₹250 crore in 2024.
How do they afford this? Some use money from previous share sales, but many take loans by pledging their current shares as collateral. Wealth management firms often extend non-recourse, interest-free loans, making it easier for founders to finance these buys.
Why do it? Lenders see an opportunity to gain if the company goes public, while founders may want to show confidence in their company’s future or believe it’s undervalued, which helps reassure investors.
This strategy isn’t without risk—if things don’t pan out, founders who borrowed to buy shares could face steep losses. However, loans with waived interest or non-recourse terms offer founders a low-cost way to potentially grow their wealth.
It’s notable to see public company promoters selling off shares while startup founders like Rajan are betting on their companies’ futures. Founders who buy shares often avoid the criticism aimed at those who sell; ultimately, it all depends on the terms they negotiate with lenders.