The Recent IPO Boon Impacts Indian Venture Capitalists


India is gearing up for tech IPOs, including two worth more than $1 billion, as startups look to tap a stock market that has proved resilient despite Covid-19. The initial public offerings reflect the maturing of a generation of e-commerce and digital-economy companies, of which many have grown rapidly during the pandemic as well-off city-dwellers turn to them when purchasing products from milk to medicines.

Food delivery firm Zomato Ltd is listed on the Indian stock exchanges at more than 50% premium to its issue price of Rs 76. Excited by the historic response to Zomato IPO, many other Indian startup unicorns have started gearing up for IPO to take advantage of the frenzy on the Street. The pipeline of tech-related companies is robust and includes firms such as Paytm, PolicyBazaar, Nykaa, Cartrade, Ola and MobiKwik.

In an attempt to capture the spotlight, firms are taking various paths. Nykaa has changed the status of the firm from a private to a public company in preparation for its IPO, whereas, Paytm is considering raising about 20 billion rupees in a funding round before its initial public offering as the startup backed by Jack Ma’s Ant Group Co. enters the final leg of preparation for its listing this year. On the other hand, Ola wants to create enough buzz and traction about Ola Electric in the market, which will help the company to attain a higher valuation during IPO.

Similar trends are also visible around the globe as US companies alone raised a record $435 billion in stock sales in 2020, with more than a quarter of that figure coming from IPOs, far outstripping 2014’s mark of $279 billion.

The vast majority of those new listings defined themselves as technology companies. Cloud-based software firms like Zoom, Snowflake, Asana, Airbnb, and Palantir all performed particularly well, and continue to see their stock price flourish as remote work and e-commerce continue to be the norm for many into 2021. Companies rumoured to be lining up a 2021 IPO include Instacart, ZipRecruiter, Coursera, Bumble, Squarespace, and Coinbase.

“For startups looking to go public, it can’t be just a numbers game anymore, and they can’t list just based on projections. The data has to be far more concrete. Not just valuations based on accepted accounting standards, but also strong market and business fundamentals,” said Vidisha Krishan, partner, capital markets and corporate laws, at law firm MV Kini.

Successful listings by the Indian fintech companies could trigger a larger number of homegrown fintech companies to make their debuts on Indian exchanges in the coming years mirroring the trends set by foreign counterparts listed on Nasdaq of the United States and China’s Shanghai Stock Exchange over the last two years. It is evident that the IPO listing is bound to accelerate the growth rate, clearly impacting the venture capital industry.

From an entry-level perspective, the overall cash flow in the market is bound to increase, increasing the liquidity of VCs as a result. Hence, this will help VCs invest generously in tech companies to help them grow in all stages. Whereas, from an exit perspective, the high cash flow in the market is the reason for gainful exits by investors. This has also led to companies being able to buy back their shares or sell them with ease.

The first couple of domestic IPOs could set the stage for several things. Where valuations settle could determine whether other privately-held unicorns can continue commanding rich valuations or whether there will be a correction. It could shape the narrative and decide the legitimacy of the startup ecosystem at large for decades to come.

Categories: IPO Bankers, Micro VC

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