2021 was a spectacular year for initial public offerings (IPOs), with 1.03 lakh crore ($ 13.9 billion) raised over 51 issues by the end of November. A considerable number of Indian tech startups went public with IPOs on the capital market.
Starting with Zomato, the list includes top startups such as CarDekho, PolicyBazaar, Nykaa, Paytm and Freshworks (although listed on NASDAQ), while the healthtech unicorn Pharmeasy and logistics tech unicorn Delhivery include the regulatory draft of the Red Hering Prospectus (DRHP ), which means that they would be going public soon.
On the plus side, these soaring IPOs play a significant role in creating wealth for the named startups, their employees, investors, and a host of other stakeholders.
Ajay Thakur, Head of BSE SME and Startups, on the Bombay Stock Exchange (BSE): âThe Nykaa and Policybazaar listing is a very encouraging sign. We see investor risk appetite increasing and if the market needs to grow it has to go along with the old and new economies. Many startups that have grown into larger companies will try to explore the stock market’s mainboard. “
He adds that startups to be listed in oversubscribed IPOs, and those who trade with a premium will also motivate other colleagues in the startup ecosystem.
However, all of this means that a number of startup founders have now become CEOs who no longer run a privately financed company, but a publicly traded company. And that means that both these founders and the organizations have to go through multiple shifts to play in their new avatars.
Ronnie Screwvala, co-founder of edtech unicorn UpGrad and founder of the media company UTV Group, explains: âWhen you take money from a private investor, there is an entirely different agenda and that changes when you become a public company. You have to be ready for that. This does not mean that you only need to be prepared for quarterly results, it also means that you need to become a very good communicator. It is a public company and it is a chore for you to be sure to communicate it. That will be important. “
The rule of thumb for running a publicly traded company is to understand that it is under far more regulatory scrutiny than ever before. The autonomy that startups have when they are kept private drops significantly. It also means there is now a need to focus more on corporate governance, increased financial disclosure, better financial reporting, deeper investor relations, and robust functions.
Ronnie Screwvala, Co-Founder and Chairman of UpGrad
Prashant Pitti, Co-Founder and Executive Director of Easy Trip Planners, which operates EaseMyTrip, shares his own experiences before and after the IPO. The online travel company started its IPO in May of this year, which was 159 times oversubscribed.
“We have successfully grown from a privately owned company to a publicly traded company, and the biggest difference we’ve seen in running our business is greater accountability, trust, and transparency.”
Prashant adds that it’s important to consider the impact and value the company is about to create now, and how it will affect its stakeholders in return.
âWe have to adhere to mandatory regulations and make sure we follow them every time. We now have industry veterans as independent directors who advise us and obtain approvals for any activity that makes business decisions more inclusive and sustainable, âsays Prashant.
He explains that in addition to internal controls, there is also an increased focus on external activities, such as working with a larger setup that includes investors, stock analysts, the media, industry and regulatory authorities.
“It has helped us achieve greater growth by maximizing our financial and operational potential,” said Prashant.
From the moment you decide to go public
For every listed company, the path to an IPO begins long before the DRHP is submitted. As key founders and executives work with investors to finalize the legal issues, the stage continues to be prepared to shortlist and appoint trade (investment) bankers, legal advisors and other domain experts to kick off the IPO bring.
Plus, the metrics that used to work for the company don’t really help the company along the way to its listing.
Prashant explains another important factor that brings 100 percent clarity towards the company’s ultimate goal and how it can be achieved as a team.
âLet everyone understand the importance of their role and be a team player to achieve this goal. As an organization, we are fortunate to have this strong synergy and harmony across the board from the very beginning where we have managed to grow our business exponentially and become the second largest online travel company in India. We believe this is one of the main reasons that helped us transition and achieve the status of a successful public company, âsaid Prashant.
It’s also important to always believe in increasing your sales while maintaining a healthy bottom line.
âWe internalized that right from the start and, with our persistent efforts, have managed to remain profitable to this day. While we continue to focus on growing our sales, achieving profitability and increasing our market share, equal efforts have been made to improve operational efficiencies as well. In addition, we continue to build efficient and robust infrastructure and create greater value for our stakeholders. We believe that with real growth you can set new standards in terms of revenue generation, âhe adds.
The changing dynamics
While the dynamics of running a listed company differ significantly from that of a private company, the change in the investor pool is also large. Explaining the changing dynamics of the IPO landscape, Ronnie says that the sectors that have gone public are about making ordinary retail investors curious about new sectors, there is a curiosity dynamic.
âMany people today wonder how a profitable company can be valued in the same way as a loss-making company. If you look at the old economy with a manufacturing focus, it all went on your balance sheet, but in the service economy it goes through the P&L. There is no justification and no fine line. The point is who gets to the finish line, âsays Ronnie.
BSE’s Ajay adds that there are several advantages to getting pure equity funding and making the balance sheet stronger.
âPlus, in addition to providing employee stock option plans (ESOPs) to their best employees, they get a lot of attention. Funding is an integral part of any business ecosystem and the (stock exchange) is a place where maximum wealth accumulation occurs, âAjay added.
Ronnie adds that people today are trying to deduce which of these new age tech companies will be stronger in the next four years.
âWhen you presented the results for that quarter, work on them had started two years before those results. That said, you have to ask and see how things will look in eight quarters. Today, the companies that come out have a balanced opinion, âexplains Ronnie.
His advice to companies that are listing today? Leave a lot on the table, and whatever you do, plan six quarters in advance.
It also means that IPO valuations must be reasonable so that post-listing growth generates value for a larger group of shareholders, rather than founders and early investors taking away the maximum extractable value at the time of the IPO.