Challenges & Opportunities Striking Startups on its Way towards IPO
Lately, Indian startups have been making a rush in filing IPO. This mania has been spread across several prominent brands such as Paytm, Nykaa, PharmEasy, Zomato, and more. The startup's eye IPOs as it aids them to enhance and scale up their business also the organization gets the credibility as it's under scrutiny. As we know, IPO is nothing but a process of converting a private firm into a public company by securing capital from the stock market, referred as 'Initial Public Offering', which draws the organization to public scrutiny. After it is listed on the stock exchange, the organization becomes a publicly-traded firm as its shares could be traded in the open market.
The main reason behind most companies eyeing IPO is the insight of the enormous need for investment in the Indian startups among global investors. Companies intend to leverage stock markets that are optimistic about a secure enough capital for enlargement plans for a longer timeframe favoring IPOs to forthcoming investments from existing shareholders.
Taking on what IPO demands, Manish Agarwal says, "Sturdy emotional maturity is needed to deal with the things also strong conviction about the business and predictability of revenues and PNNs are required to opt for IPO."
Also, the Securities and Exchange Board of India (SEBI) has eased several norms to simplify for startups to get listed on stock exchanges. SEBI had cut down early-stage investors' time to hold 25 percent of the pre-issue capital to one year from two years. It also amended guidance that earlier prevented startups that are going public from making optional allotments to support startups to assign up to 60 percent of the issue size of the IPO to an eligible investor subject to a lock-in period of 30 days on such shares.
On the Pros of IPO, Nipun Goel says, "A Listing provides a lot of flexibility in terms of future financing and it's important for companies to look into IPO. After going public listing is a six or seven months process post which the race of financing eases remarkably.
Hints of IPO on Offer
Analysts assert that every startup should be seen as a separate business, and investors should not view them as about one basket. Tech companies or startups have to be viewed from the larger perspective of their business opening and what they could do in the future. Also, investment experts state that investors should thoroughly evaluate fintech firms tracking for IPOs as banks have also intensified their digital presence and technology upgrades. Furthermore, investors need to practice caution for companies that have not defined their business model and keep changing their focus clearly.
It is only sensible to view a tech company or a startup from a larger perspective and analyze how far it can create business opportunities. Investors should evaluate companies going for IPOs and should not invest in companies that do not have clearly defined business models, focus, or credible investors. An informed idea about the companies' purpose for raising the stock market is necessary to invest in an IPO.
Ups & Downs of IPO
However, opting for IPO brings in its set of pros and cons. IPOs aid enterprises and startups to improve and expand their business. India's tech companies have seen investments from Indian investors and international investors, who endeavor to invest through public and private investments. Businesses could acquire capital for new business. It also presents the company as more reliable and transparent in announcing its financial estimates and other developments to the stock exchange. The organization also grows more credible as it is under inspection.
However, preparation for the IPO is expensive, complicated, and time-consuming. Investment bankers, lawyers, and accountants are needed, and often, the firms could hire outside consultants. It may take a year or more to plan for an IPO. Company and market conditions may change wholly in this period; it may no longer be favorable for an IPO, thus initiating the preparation work and expense useless. Furthermore, failure to address the target numbers or estimates often results in a deterioration in the stock price. Dropping stock prices further spurs additional dumping, moreover eroding the value of the equities.
Talking about the challenges companies encounter while filling IPO, Salil Pitale says, "The company would be subjected to QSQT environment scrutiny every quarter. The composition of the public markets is institutional and thus the company would be subjected to every second putting the company always under the radar. Thus, the company should be able to do a cross-business that is predictable. Even the smallest blemishes can be amplified in the markets very big time, hence has to be cautious."