At the start of this year, we reached out to you with some news.
This news was that companies like boAt and PharmEasy were all geared up to announce their IPOs. Fast forward to now, there is still no word from any of these companies as to when (or if) they would even release their IPOs.
But why?
After all, right now, the Indian market is doing pretty well. Investors, both public and private, are pouring money into new-age startups or existing companies.
Companies like Adani Wilmar, LIC India, and Delhivery already winded up their IPO round with great numbers, especially in a not-so-great economy.
But why did tech companies like MobiKwik, boAt, Droom, and other tech companies, that were planning to launch their IPOs this year suddenly abandon or freeze their plans?
Well, here’s the thing.
The vision of the investors
In one of our previous newsletters, we mentioned how major startups that were growing at a rapid pace suddenly started losing money left and right. That was because of market corrections and how cash burns weren’t proving to be really efficient.
Well, there’s kind of a similar situation going on.
Back in January 2021, boAt raised over a $100 million investment.
You see, in January 2021 boAt raised $100 million from PE firm Warburg Pincus. It was valued at $300 million. But when the IPO was announced, boAt’s valuation suddenly jumped 7x. To nearly $2 billion.
This kind of valuation is good and bad at the same time.
You see when a company raises funds, it bets on the long term. It burns cash for marketing, production, improving services, and building a streamlined infrastructure. And while private investors who bet big on this kind of development are willing to bet for the long game, public investors aren’t.
While on one hand, private investors care about adding new users to the database, public investors just mind the bottom line.
- Is your revenue growing?
- How have your quarters been?
- How much revenue are you projecting?
- What does the media think about you?
This makes it evident enough that when tech companies are burning cash for revenue and growth for the long term, public investors don’t really look too kindly upon that.
After all, that’s what happened to companies like PayTM, Nykaa, and Zomato where they had a great start, yet that didn’t sustain for long.
Right now it doesn’t matter if the Nifty and Sensex are doing well, but tech companies can’t grab a piece of the pie, at least not for a while. Not until they don’t show profits.
This is one of the main reasons why most tech companies are resorting to layoffs just so they could quickly cut down costs.
But that’s not all.
Market regulations
Due to the unrealistic valuations that companies have been issuing for a while now, SEBI decided to take action last month.
The companies now are supposed to make more disclosure before they decide to go public.
This means that they have to explain how the IPO is priced. This means that the process of evaluating and pricing the IPO is something that needs to be clear enough for the public.
These reasons are enough for a tech company to reconsider its decision to release its IPO, at least for now.
Till then, you can stay updated with us at MoneyIsle to stay up to date with the latest fintech information and updates.
