Hike funding

The brief: the problems of financing start-ups

The enigma of the IPO

Times will be tough for start-ups that aspire to provide exits to investors via IPOs. Zomato’s over ₹9,000 crore IPO launched in July last year, which received a stellar response from D-Street, was almost like a playbook for many fledgling companies, encouraging more start-ups to cement their IPO ambitions.

Even as start-ups including Byju’s and Swiggy prepare their IPO plans, the current volatility in the markets has raised concerns about their feasibility. Already, companies such as Mobikwik, Delhivery and PharmEasy, which had Sebi given the go-ahead for their IPOs, are reviewing their timelines. Some like Oyo seek to reduce the size of their problem.

“There would now be huge challenges to get a start-up IPO in India. Market sentiment has changed and companies are unlikely to find favor with retail investors,” Mehta says. Consequently, late-stage venture capitalists who typically write large checks for start-ups and hog the bulk of an exit’s returns may not be keen on injecting significant capital.” For any venture capitalist, the most acceptable way to find an exit would be through IPOs of their portfolio companies.It would not be prudent for late-stage investors to bet large sums of money at high valuations if they are unable to find an exit via the IPO,” the analysts say.

Going forward, India’s private equity and venture capital market will enter a different zone with rising interest rates and inflationary pressures, and potentially hawkish monetary policies, according to a recent EY-IVCA report. “This is likely to impact valuation multiples which have reached an all-time high over the past year and could see a downward revision in overheated segments,” he added.

Analysts, however, expect seed and early-stage funding to continue unabated thanks to an expanded investor pool spanning family offices and angel investors. “When betting on an early-stage start-up, investors only look at its potential. The early stage is always in demand,” says Rema Subramanian, co-founder and managing partner at Ankur Capital.