Oct 09,2021 | 5 min read

IPO- Boom or Bane for Indian Startups Ecosystem

Of late India has developed a very comprehensive ecosystem for startups. India has become the world’s third-largest startup ecosystem and it is the fastest-growing. The ecosystem has also started to witness the unicorn club, although they’re at their nascent stage. Startups' prime source of funding is venture capital investors. Now startups are filing for an IPO and this will help startups to bring more capital. 

Traditionally in India, before going for an initial public offering (IPO) it has to be profitable for at least the last three years. Most of the startups which have a valuation of over one lac crore are still not profitable. The IPO process is also lengthy and before going for IPO they have to get approval from the Security Exchange Board of India(SEBI) which is a capital market regulator in India. It is a time-consuming process for fundraising.

In 2013 just dial went for an IPO for fundraising. SEBI asked to provide a safety net to safeguard the interest of retail investors and Just Dial adopted the scheme. Under the safety net option if the company’s market price is below the issue price prior to the compilation of six months since listing. The issue price also offered by the Just dial is 10% which was earlier 5%. Safety net shows the confidence of a company in issue price. 

IPO can not replace venture capitalists and angel investors both are important for the startup ecosystem. It is difficult for startups to become IPO listed without getting funded by the VCs and angel investors in their early stages. 

IPO Paradigm 

The successful Zomato IPO will increase the confidence of investors and entrepreneurs and the returns earned by the investors can fund new startups. It can not only fulfill the dream of existing entrepreneurs but also upcoming entrepreneurs. Zomato IPO success also indicates those companies that have the potential will be accepted by both institutional investors and retail investors. It may be the start of the IPO boom in India. IPO boom will also indicate that India has a vibrant stock market and early investors do not have to rely on accusations, mergers, and secondary exits to get an exit. Indian market valuation has been fair which is good for investors.  

There is a demand for tech companies. Tech is not a niche today because most of the companies these days offer products and services through technology. The Indian market has plenty of room for Indian tech as consumption shifts online. Tech startups looking to tap a stock market. Paytm would be India’s largest IPO.  

While China's changing regulations are causing concern to investors. India is improving their regulatory framework which provides more capital to come in India.  This will help the Indian startup ecosystem to get funds. IPO gives a good return to investors when exit which can be invested again with a more promising startup.

The digitalization of financial services has given the increase of Demat accounts in the last year. This also increases the number of first-time investors in the market. Sensex continued touching new heights. In 2008 global financial meltdown followed the IPO boom. This time covid 19 followed the IPO boom. After the second wave companies are all set to hit the market with IPOs. investors still have to look where they want to invest because not all companies are great. The company needs good leadership and long-term growth.  

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Lawyered Team

Lawyered Team