As many as 80 start-ups in India may hit the public market by launching their initial public offerings (IPO) in the span of next five years, according to a report by consultancy firm RedSeer.
“India may see 100+ matured, large-scale profitable/path-to-profitability start-ups in the next five years. With about 20 of them already being listed, about 80 start-ups have the potential to look at an IPO journey,” the report, authored in collaboration with HSBC, said.
About nine start-ups have already filed their draft red herring prospectus (DRHP) with the market regulator Securities and Exchange Board of India SEBI and approximately 10 start-ups have commissioned or completed their DRHP drafts while 62 potential start-ups will be open to work towards IPO readiness in the next 5 years.
The report said India has significant room for growth given that tech/new age companies account for just about 1 per cent of the $3.9 trillion market capitalization of Indian public market as against 25 per cent of $43 trillion market capitalisation in the US.
Start-ups should follow a deliberate & goal-based approach to IPO with specific focus on metrics such as market leadership, clearly visible TAM, moats/multiple use cases, diversification, consumer love, predictable revenues, high operating leverage, sustainable unit economics and a clear path to profitability, it added.
“We have learnt from the ecosystem stakeholders, bankers and public market investors that, for going public, one still needs a lot of relationship development early in the journey and not closer to the event. Engagements need to be at least two years ahead of the event. CFOs should have an independent stand that the investors should look forward to. Finally, building strong governance that you as a company have and follow leaves little room for surprises,” the report said.
Last month, Prashanth Prakash, a founding partner of venture capital firm Accel, said at least 25 start-up unicorns in India will hit the public market by launching an initial public offering (IPO) in the next three to five years. Speaking at the inaugural function of the 25th edition of Bengaluru Tech Summit (BTS), Prakash said that it is time Indian start-ups focus on profitability which will create multigenerational companies and great IPOs so that the ecosystem can return the $150 billion of venture investment the country has absorbed back to investors.
“If we don’t return money back to our investors, we are not going to get new capital into this country. My prediction is that of the 100 unicorns, we will have a massive supply chain of IPOs, at least 25 of these unicorns will go IPO in the next 3-5 years, and through this we will be able to create multiple billion dollars of exit that is required to return money back to our investors globally and in India which will create a virtuous cycle of more investments coming into the start-up ecosystem,” Prakash said.
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