In today's Finshots we talk about why so many tech startups are trying to go public in 2021
Zomato, Nykaa, PayTM, Delhivery — They’re all gearing up to go public. It’s almost as if the Indian startup ecosystem met at once and decided this was the most opportune moment to IPO in India.
Well, we can’t say for sure. But we can speculate on the matter.
For starters, this whole IPO rush isn’t just limited to India’s coveted tech startups (if you can still call them that). The IPO bug has bitten everyone. Between April and May this year, 20 companies have filed their prospectus. That’s them telling the regulator — “We’re ready to go public.”
And the list includes companies from various domains. We’re talking about airline companies, quick service restaurants, life science companies, small finance banks, asset management companies, and so on.
But that still doesn’t tell us why these people are so excited. What’s so special about the present moment?
Well, one possible reason could be this — “There’s just a lot of money going around now.” And we know what you’re thinking — “At a time when the economy is in the doldrums, who’s got money? Where is it floating exactly”
The answer to that is a bit complicated. But you can think of it this way. Central banks have been pumping new money into circulation in the hopes of alleviating some of the aftereffects of the pandemic. This money enters the banking system and eventually makes its way into financial markets — mostly stocks. And that means there’s ample money floating around in big institutions that have the financial muscle-power to invest in IPOs. So the argument goes that startups are confident about generating substantial interest if they were to go public right now.
The second argument is that we are already in a bull run.
Stocks are on the up. They are going to the moon, some say. And if you ever wanted the Indian public to subscribe to your vision and the IPO, this seems like a very good time, doesn’t it?
Even if you’re a loss-making entity, the bull run could incentivize investors to pour in new money. They’ll go where the wind takes them. They love momentum. And if this plan works out well, maybe these startups could command an even higher valuation than they originally expected.
Another theory is that several internet startups including the likes of Zomato have benefited from the pandemic. Their numbers are more robust now. Sure, you could argue that the first few months of the lockdown weren’t necessarily conducive for business, but since then many startups have gone on to acquire new customers, bolster their financials and add a bit of stability on top. They would have done it anyway considering many of them have been aspiring to go public for a while now, but the pandemic expedited this initiative.
Finally, there’s the regulatory aspect nobody is talking about. SEBI has worked on making it easier for startups to list in India. There was a time when internet startups went to the US. The likes of MakeMyTrip and Yatra are listed in Nasdaq. And things were looking pretty bleak until SEBI introduced the Innovators Growth Platform and made changes to make it easy for Indian startups to list domestically. In fact, rumour has it that the regulator may continue to push reforms in a bid to list more Indian startups in India. But we will have to wait and see how that pans out.
So yeah, all in all, there may be many factors at play here and even if not all of these startups list in 2021, you could bet that they will list sooner than later.