Gupshup Gets $240 mn for Share Buy-back Ahead of IPO

India focused messaging startup Gupshup has raised $240 million from Tiger Global Management and others to buy back shares ahead of a potential IPO next year.

Whereas venture capital investments are traditionally used to hire more engineers or expand sales and marketing, buy-back deals allow investors in startups to realize their investment prior to an IPO.

The flood of money comes at a time when startups stay private longer, leading to more buy-back deals in the private market, said Ed Zimmerman, an attorney for Lowenstein Sandler who teaches venture capital at Columbia University’s business school, referring to the market in general.

Gupshup raised $100 million from Tiger Global in April and was valued at $1.4 billion. Tiger Global has emerged as the largest funder of venture deals this year.

Gossup, which means chit chat in Hindi, allows businesses to communicate with customers through existing chat channels such as text messaging, CEO Birud Sheth said.

“We want to build relationships with these big investors because they can help us with future IPOs and our growth. But taking on too much money can be dire,”

Sheth said of the buy-back as Gupshup has been around for more than a decade, Sheth said there was one investor who also died, necessitating the buy-back. The buy-back will also allow employees to cash out, a challenge for many startups as the delayed IPO has kept many founders and employees rich only on paper.

This has helped create an active market for stocks in the private market, said Paul Maguire, managing partner at Iron Age VC, who set up the fund to invest in startup stocks. In the public or private market, buy-back deals were often a major endorsement of a company, he said, without knowledge of the deal.