nithin kamath: ETSA 2021 Panel discussion: Long way to go, don’t read too much into tech IPO slowdown

Bengaluru: Last year was undoubtedly a landmark one for Indian startups as eight new-age companies made their way to the public markets on Indian and international bourses. These included names like Zomato, Nykaa, Freshworks, PolicyBazaar and Paytm, some of which made stellar debuts and subsequently lost value sharply. With a global slowdown in tech stocks and market volatility continuing due to the Russia-Ukraine conflict, the first quarter has been salutary for Indian startups waiting to go public.

At the ET Startup Awards, a panel that included some of India’s startup luminaries discussed the IPO opportunity for new-age firms and how they will transition from private to public markets. On the panel were Sahil Barua, cofounder, Delhivery; Lizzie Chapman, cofounder, ZestMoney; Nithin Kamath, founder, Zerodha; Abhiraj Singh Bhal, cofounder, Urban Company; and Shekhar Kirani, partner, Accel. The discussion was moderated by ETtech editor Samidha Sharma. Excerpts:

What goes into a company’s transition from a private to a public one? Are startups ready for the scrutiny?

Barua: While we haven’t made the transition from being a private to a public company yet, I think, at least for Delhivery, nothing really changes. It’s not really true that private firms don’t face scrutiny from investors in their board before they go public. In fact, private investors ask more sophisticated questions.

And I think that Indian startups are ready. At least the ones that have gone public, and the ones who are in the line, along with Delhivery, certainly seem ready.

We’re reading a little too much into some of the wobbles of the last six or seven months, which are really more market-driven than anything to do with the companies themselves.

Right now, everyone’s too focused on the valuation rather than the businesses. And I think that’s what is confusing. The one change that needs to happen more is startups having more active powerful independent boards much earlier than they historically have had.

Do you think that there needs to be higher scrutiny on startups, at the early stage itself? What is the right stage for startups to go public?


Chapman: I don’t think there’s anything wrong with companies going public early, if it leads to greater scrutiny, especially from a governance perspective. I think a lot of what we’ve seen in the last three months is public markets reacting to governance concerns. Frankly, companies should have had their house in order. So I don’t think there’s anything wrong with small companies going for an IPO at the right time, assuming they have good governance and a path to profitability.

Nithin, talking about a house in order, even companies like Zerodha have not gone public. What is the view about listing then?



Kamath: I think the problem with our business is, there is no predictability, at least at this stage. So firstly, we don’t need the capital and go public to raise money, since we are profitable. Our performance is completely dependent on how the markets behave. In the last three or four weeks, with enormous volatility in the markets, our customer acquisition is down by 25-30% month on month. And when you go public, you have to project targets and achieve them.

And we don’t want to mis-sell while achieving these targets. Maybe when there’s more predictability in the business, we might think of an IPO. Abhiraj, when did you decide to go public?

Bhal: The moment you take the first venture capital cheque, the taxi meter’s down. And, you’ve got to return it. And that could either be through a secondary exit or eventually going public. I think going public is a very broad-based way of creating wealth.

In a public market, if you miss your annual operating plan by a percent, your stock can take a beating. Hence, you’ve got to have very strong underlying predictability, and have scale along with a profitability profile. Internally, we’ve already started the work and added independent directors.

In the IPO landscape, what is the right window for startups to follow?



Kirani: When the market changes, obviously the companies will not go public. Last year there were 120 and this year only one in the US market. So are companies stopping? The answer is no. Companies continue to work towards building durable world-class, cash-generating businesses.

But when the markets are frozen, nobody can underwrite the risk of the public market, as in the US or in India. It is going to take a couple of quarters before the market opens up.

Post Zomato and Nykaa IPOs there were a lot of companies that lined up and said they wanted to go public. For Urban Company, was this momentum driven or is it something that was pre-planned?

Bhal: When we spoke last year, we were looking at a timeline of 18-24 months. In reality, 18-24 months in the public markets is a very long time. The markets can change. So we all want to go public when markets are favourable, but I think if the business is good and strong, the most a founder can hope for is reasonable markets. I would say, we can’t completely ignore the macro aspect of timing; however, it is just one of the inputs.

Shekhar, can you talk about how different it is for Indian companies listing here in India vis-a-vis the US?


Kirani: The maturity of the two markets is completely different. Our market capitalisation in India is $3-3.5 trillion, while the market cap of the US is around $50 trillion. And, there are material 45-50 mutual fund houses in India that matter, versus the US, which probably has around 3,000 funds. The US (public) market understands every business model, but India is just catching up.

Sahil, what has been your experience with the regulator (Sebi) when you were filing your DRHP (Draft Red Herring Prospectus)?


Barua: I think the approach that Sebi is taking is conservative, and rightly so. Sebi is trying to bring in a consistent regulation that can be applied for all the startups. And that process is taking some time. And I think that is okay. If I look at the sheer diversity of companies that are going public, the information that each company puts out is the kind of information Sebi and investors have never seen. And the conservative approach is probably the right approach at this point.


Nithin, what do you make of fintech valuations correcting now, especially post Paytm’s listing?


Kamath: I think it is in sync with what’s happening globally. Robinhood was at an $80 billion valuation and now it is at $10 billion. I think the private markets are working alike. On the (public) market side, all high growth startups are seeing a correction. It is not really the fault of any company and it is a global phenomenon.

I think it will be quite challenging for companies like Urban Company or Delhivery to list in the next three-six months unless globally the trends change.

Shekhar, your views on if the IPO momentum will sustain?


Kirani: I believe that momentum will come back, but momentum will always be there for top-notch companies. But today, the market is frozen. If you look at the liquidity in the US market, even at S&P 500 companies’ futures, $50 million was made in Q4 per day, today it is $5 million – almost a 10X reduction. This means markets are frozen. Investors don’t want to risk, they don’t know the price of the asset anymore. Until the geopolitical crisis resolves and the Fed increases the interest rate and stability comes in… then people can better price the markets.

Are you seeing the impact of this correction rebalancing the valuation in the private markets already?


Kirani: So far, you are seeing the remnants of the investment decisions that were made in the fourth quarter, and early January. Now, the late-stage crossover funds which are coming to India are slowing down, because their public markets have taken a hit and it is reflecting on late-stage.


Nithin, what does your data say about the momentum of companies going public? How will things pan out in the next six-eight months?


Kamath: I think the next three-six months will be tough… Some of my friends are institutional investors and I think they will wait for this uncertainty to get over. And, now that there is LIC’s IPO, it is going to suck out some liquidity from the markets as well.