The Initial Public Offering is the utmost goal of every startup. Releasing the shares to the public confers numerous benefits to the company. Such as capital raise, higher valuation, reduction of corporate debts, etc. The year 2021 was a purple patch for Indian startup IPOs. Eleven Indian startups went public including Zomato, Nykaa, Paytm, etc. But the tables turned over in 2022! Why? You may ask. Because only three startups went public in 2022 including Delhivery and Traxcn Technologies.
Why did the number of IPOs fall drastically? What happened to the Indian startup IPOs in 2023? Will you see any IPO in 2023? Well, there are bountiful queries in your mind. We will provide a detailed explanation of the current scenario of Indian Startup IPOs in 2023.
The Story So Far
The second quarter of 2023 has started but still, we can barely see any startup nearing an Initial Public Offering. Did you know companies like OYO, PharmEasy, and BoAT were planning for an IPO in 2022? But after seeing the underperformance of companies that were publicly listed in 2021, they delayed their IPO plans. Not only that, some of them went through a rough patch too! Let’s have a look at some of them-
1. Reduction in IPO size of OYO
This was the most difficult phase of OYO’s journey. Once anticipating an IPO worth $10 billion, its value crashed to $400 million. And now it reduced 2/3rd of its shares for public offering. We have already explained the OYO IPO rollercoaster in great detail. You can visit it for more details about the OYO IPO.
2. GoDigit recently refile its DRHP
The prime reason for this was SEBI’s concerns about the employee stock appreciation plans of GoDigit. The new IRDA rules imposed on GoDigit are acting as a major hurdle for its IPO.
3. Less participation of Venture Capitalists
Most of the startups that were looking forward to IPO in 2022 were not performing well in the unlisted market too. As you know, venture capitalists have played a crucial role in the economy for decades by financing high-growth startups. But their underperformance is disappointing the VCs!
Reasons for Slowdown of Indian Startup IPOs
Now let’s quickly look into the key reasons that led to the slowdown of Indian Startup IPOs from last year.
1. Uncertain market conditions
It refers to a situation where there is a high level of unpredictability or volatility in the market. This can be caused by various factors such as political instability, economic uncertainty, global events, changes in regulations, or natural disasters. During uncertain market conditions, investors and businesses may hesitate to make decisions, leading to a slowdown in the economy. Stock prices may fluctuate wildly, and investors may become more risk-averse, resulting in lower demand for stocks and other investments.
2. Poor performance of Startups in the unlisted market- Overvaluation and depleting financial health
The poor performance of start-ups in the unlisted market can be attributed to several factors like liquidity, low revenue generation, losses of the company, losing the trust of VCs, etc. Start-ups require significant investment in research and development, marketing, and infrastructure, which can put a strain on their financial resources. Due to a lack of investment start-ups may face challenges in R&D, revenue generation, and profitability. This can further impact their performance in the unlisted market.
3. Public’s Lack of Interest in the Companies
Consider a scenario where you publicly list your company and the value of your shares falls down drastically. Not only will you be in losses but also the overall valuation of your company will decline significantly. This is the chief reason why investors are scared right now for their companies to go public. Presently, the probability is quite high that the public will not show enough interest in those companies (Startups). But why so? Why won’t the public be interested in IPOs? We have explained the reason in the next point.
4. Macroeconomic factors
The macroeconomic factors directly impact the money in your pocket! Curious to know the reason? People put their money into investments only when they have enough of it after the fulfillment of basic needs. Due to the following factors, people don’t have sufficient money to put into a risky market-
- Recession and layoffs
- Global Economic Crisis: Pandemic, Russia-Ukraine War, Geopolitical Uncertainties
- Interest rate hikes
- Rising inflation
- Sudden disruption of the banking industry (Collapse of Silicon Valley bank, Signature bank, Silverage bank)
- Panic in the startup ecosystem due to lack of funding
- Negative coverage of Indian startups in the media
5. Lack of Understanding of the startup business models
Business models are the core of the startup/company. If you thoroughly understand the business models of the startups, then only you will figure out whether the fellow startup holds the potential to be successful or not! Sadly, there are very few sources where you could get sufficient information about a company’s business model. That’s why we have explained the business models of various companies that can help you to understand the core principle of startups. Once you understand the business model and revenue generation potential of a company, then you can easily make a decision, whether you can invest in it or not!
Now, investors are prioritizing value over growth. According to potential investors, startups need to focus on building sustainable businesses with strong fundamentals before going public. Despite the rough patch of the current year, certain companies are planning for an IPO. Some of the significant upcoming IPOs are-
|Name of the Company for IPO 2023||Issue Size|
|Mankind Pharma||Rs.4,326.36 crore|
|Mamaearth||To be announced|
|Go Digital Insurance||Rs.3500.00 crore|
|Tata Technologies||To be announced|
|Utkarsh Small Finance Bank||To be announced|
|Go Airlines||To be announced|
|PharmEasy||To be announced|
|Byju’s||To be announced|
|OYO||To be announced|
|boAT||To be announced|
The upcoming years are going to be drier for new-age startups. Despite adverse market conditions, many startups are either postponing their plans or cutting down the IPO size. But 2023 seems to be a bit positive as compared to last year. Let’s see what happens next. We will update you soon!