Tech IPO Boom With Easing Headwinds

'The success of one or two IPOs does not dictate whether the upcoming IPOs will be successful or not, but it certainly indicates that the markets and investors are enthusiastic about startup IPOs.'

With the equity markets making record highs, a wave of new-age startups is setting sights on public listing in 2024.

As many as 12 companies are considering going public in the new year.

According to industry observers, improving market conditions, the private sector's need for stable capital, and a growing appetite for new-age technology businesses are fuelling optimism for public market debuts among these startups.

"The public markets are showing an increasing appetite for non-traditional, technology-based businesses," said Pratip Mazumdar, co-founder and partner at investment firm Inflexor Ventures.

New-age technology initial public offerings (IPOs) have gained momentum recently.

In 2023, five companies went public, up from three the previous year. These include Yatra, Zaggle, Yudiz, IdeaForge, and Mamaearth, with a combined issue size of around Rs 3,650 crore.

In 2022, logistics unicorn Delhivery, market intelligence platform Tracxn, and drone startup DroneAcharya raised just over Rs 5,550 crore through their IPOs.

As many as 11 startups went public in 2021, driven by a funding boom and macroeconomic tailwinds during the year. However, instances of listing have since slowed down.

Following the successful IPOs of companies like Mamaearth in 2023, several startups are hoping to replicate this success in 2024.

"The past year witnessed a noticeable decline in growth investing, leading to pent-up demand among startups for substantial capital to fuel their scale-up initiatives.

"Going public emerges as a strategic move to access the necessary funds required for robust expansion and development," said Mazumdar.

Brainbees Solutions, the parent company of online retailer Firstcry, recently filed its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi).

The Pune-based unicorn's IPO includes a fresh issue of equity shares worth Rs 1,816 crore (Rs 18.16 billion) and an offer for sale (OFS) of more than 54 million equity shares.

Shortly before, Ola Electric filed its DRHP with Sebi, becoming the country's first electric vehicle company to do so.

The firm, led by Bhavish Aggarwal, announced a fresh issue of equity shares of up to Rs 5,500 crore (Rs 55 billion) and an OFS of more than 95 million equity shares at a face value of Rs 10 each.

The biggest startup IPO of next year is expected to come from food delivery giant Swiggy.

The company had previously shelved its listing plans after a series of valuation cuts. Since then, it has reduced its cash burn and demonstrated a path to profitability, leading to a mark-up in its valuation.

The Bengaluru-based company is now looking at a potential issue size of $1 billion (Rs 8,300 crore/Rs 83 billion) for its IPO sometime around mid-2024.

Other startups like Prosus-backed PayU and drone startup Garuda Aerospace are also looking to go public this year.

Companies that have filed their IPO papers with Sebi include hospitality giant OYO, co-working space provider Awfis, fintech startup PayMate, healthtech startup Portea Medical, and insurtech firm Go Digit.

Also, those that previously deferred their IPO plans due to volatile market conditions, such as Mobikwik, Snapdeal, Ixigo, and Capillary Technologies, may consider going public.

"The success of one or two IPOs does not dictate whether the upcoming IPOs will be successful or not, but it certainly indicates that the markets and investors are enthusiastic about startup IPOs," said Divam Sharma, co-founder of Unlisted Assets, a technology-driven platform for buying and selling unlisted shares.

While companies may still face challenges, the current recovery in macroeconomic conditions is a positive sign for startups' listing plans.

Ankur Bansal, co-founder and director of venture debt firm BlackSoil, said the success of these IPOs shall be contingent upon metrics like robust financial performance, a well-defined business model, a clear growth strategy, a competitive market position, and a compelling value proposition.

"Factors like a track record of milestones, a proficient management team, and a favourable market environment are critical. Finally, reasonable valuation is crucial to a startup IPO's success," he said.

Amid the increased investor scrutiny during the ongoing funding slowdown, companies exhibiting strong fundamentals may find more success.

"Startups should concentrate on three key areas: Strong financials, distinct routes to profitability, and robust business models to cope with these storms.

"Investors will root for companies that can ride out this turbulence and demonstrate long-term value," said Sridhar Rampalli, managing partner, Pavestone Capital, a growth-stage investment firm.

While companies may face challenges brought about due to market volatility, regulatory hurdles in sectors like fintech, competition from other IPOs, and the need to meet high investor expectations, 2024 is expected to pan out better for startups looking to go public than the past two years.

Feature Presentation: Ashish Narsale/Rediff.com