Internet IPOs: How long before the Unicorn startups show up?

Topics IPOs | Swiggy | Internet IPO bonanza

Startup IPOs are coming, or so it may seem from the public admissions of Freshworks, Delhivery, Ola, Oyo, PolicyBazaar, PepperFry and Quikr— “unicorns” that have built large-scale businesses over the internet.

Some of these will probably list, but the sentiment for broader internet IPOs in India is divided, according to half a dozen experts interviewed, past trends, global sentiment, and investor appetite.

The biggest hold-up is, as one executive puts it, “why do you need to IPO at all?”

Currently, the Indian startup space is plush with private capital. Billion-dollar rounds are no longer a rarity, public investors like pension funds are making startup bets, while bulge-bracket foreign investors Softbank, Alibaba and Tencent are not shy of any cheque size.

According to Nasscom, startups raised $4.4 billion this year so far, up from $4.2 billion in 2018.

There is so much glut that Vijay Shekhar Sharma of Paytm has called funding from Softbank an “MPO” or Masa Public Offering, a pun after Softbank chairman Masayoshi Son.

“An MPO is our IPO”, he said at an event in August, adding that Paytm, now valued at $10 billion, will stay private for at least two-three years.

“The median age for companies going for IPO has gone up,” said Vinod Murali, co-founder of venture debt firm Alteria Capital. “There is a large pool of capital available, which allows companies to stay private for long.”

Not so many internet IPOs 

So far, there have only been a handful of internet IPOs and an even smaller percentage that have done well. The biggest was the Rs 950-crore IPO of JustDial in 2013.


After seven years the stock is back to Rs 532, marginal increment to its listing price of Rs 500. For, which listed September 2017, it is worse. The company has lost over 40 per cent in market cap since IPO.

The only outlier is Info Edge, the owner of, which went public in 2006. Over the years the company has invested in a number of internet platforms and launched some more, to be relevant. Its most profitable bet, and one that supports its share price, is Zomato.

Even globally the sentiment is down. Uber, the most talked-about startup of this age, has slumped 45 per cent since listing in.

Beyond just the depth of the Indian market, there is reasonable scepticism of how India public market investors, lured by steady profits and dividends, will value consumer internet businesses.

While they may offer out-sized growth in the long run, most of these VC-backed ventures are currently loss-making. Add to that, towering valuations. At $10 billion, Paytm’s private valuation is the same as the current market cap of Britannia, a blue-chip FMCG maker.

 “There is no data on internet startups. Who do you compare it with? How do you determine future expectations? Public investors are not uncomfortable with DAUs and such metrics,” said an investor who did not wish to be named.

Secondary deals

IPOs are crucial not only for the companies but also for their investors, who sell their shares and take exit in the process. In some case, it is the investor that pushes for IPO.

An investor has three choices: sell shares in IPO, sell shares to a new in-coming investor, or sell shares when the company is acquired. The latter two are referred to as secondary share-sale.

Over the past few years, there has been healthy secondary deal activity, according to sources in the know. Some public exits are: Lightspeed and Sequoia made $1 billion and $500 million, respectively, selling part of their shares in Oyo to the company’s founder recently; Times Internet and Sequoia have had similar exits when Byju’s raised $400 million in December 2018.

This data is typically kept private but startup executives said early investors have racked in cash during growth rounds at the so-called Unicorns like Swiggy, Ola, Byju’s and the like.

Across all sectors, mature firms and start-ups, PEs and VCs clocked $33 billion in exits across 256 deals in 2018, according to India Private Equity report by Bain and Co.

This marks a clear shift from the situation in 2015 when investors were pouring in millions over millions despite little foresight of an exit option.

Flipkart’s acquisition by Walmart Inc last year — perhaps the biggest event in Indian startup land — also changed the perception. It showed that, given the concussion of global VC play, booming internet and a maturing startup scene, there was an appetite for large M&As. And, IPO was no longer the only, not even a preferred, option anymore.

Listing norms

IPOs are also crucial for retail investors as a means of wealth creation, and to exchanges who make money on tractions of shares. Both are losing out in the present scenario.

Current laws require firms to have a minimum Rs 15 crore as average pre-tax operating profit in at least three years of the immediately preceding five years.

This has kept most of the top Internet startups away, 90 per cent of them are loss-making.

Even though this clause still stands today, stock market regulator Sebi and exchange NSE have launched interventions to get IPOs more accessible.

In 2018, Sebi relaxed the requirement of pre-issue capital held by institutional investors to 25% from the earlier threshold of at least 50%. It also removed a clause that earlier disallowed any person to hold more than 25% of the post-issue capital.

“NSE has been doing a lot of out-reach to tech start-ups” asking them to list in India, said an analyst who did not wish to be named.

In 2015, NSE launched a special platforms called Institutional Trading Platform (ITP) specifically for listing of technology startups. Thought it gave some concessions, none came forward to list on this platform. Last year, after Sebi approved some changes, NSE revamped the platform to Innovators Growth Platform (IGP).

For listing through IGP, a startup does not have to be profitable, does not have to disclose its last three years financial track record, and does have to compulsorily allot shares to different bands of institutional investors.

Even with such concession, none of the firms have come forward to list through IGP.

Optimism for B2B

In start-ups, there is bullishness for business-to-business (B2B) ventures that, typically, have better predictability of revenues and profits. Enterprise software, now sold as Saas (software as a service), is also keenly watched by investors.

“I think all the B2B companies will get listed first, count MuSigma, Freshworks and Delhivery, because their fundamentals are strong,” said Atit Danak, engagement manager at Zinnov. Freshworks, however, is planning to list on Nasdaq, like how MakeMyTrip did in 2010.

Ola, Swiggy and all consumer internet firms will take much longer, added Danak.

IPO, even though primarily a funding event, ascribes a notional value of “having made it”, often offering a sense of accomplishment to the entrepreneurs.

“We have all worked very hard and have created a high-value business. Now my dream is to see it go public,” said PepperFry co-founder and CEO Ambareesh Murty.

Seeing the online furniture company go public is a career-goal of sorts for Murty, 48, who has worked in sales across Britannia, eBay, Levi Strauss and Cadbury after graduating from IIM-Calcutta.

For others, it is about timing the market to get the best returns. “We shelved our IPO plans in 2018, because the sentiment was poor at the time. We will try it again,” said Manish Agarwal, CEO, Nazara Technologies, a profitable gaming company.
    Info Edge (2006)
    170 crore
    Affle (2019)
    206 crore
    IndiaMART IndiaMesh (2019)
    213 crore
    MakeMyTrip** (2010)
    322 crore
    Infibeam (2016)
    450 crore (2017)
    500 crore
    IRCTC (2019)
    645 crore
    Just Dial (2013)
    950 crore
IPOs by Indian Internet Firms. Source: Business Standard research
**listed on Nassdaq

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