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Rahul Khanna.

Co-Founder & Managing Partner, Trifecta Capital

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The fortune of brands eyeing IPOs in India

The success of disruptive tech business models has been well demonstrated in mature markets like US and China, where listed internet stocks contribute to ~14% and ~20% of the overall market cap respectively (Source: CITI Research). I

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India, the third-largest VC ecosystem in the world, is now home to 50+ tech unicorns, up from 5 in 2014 and expected to grow to over 100 unicorns by 2025. The Indian startup ecosystem has truly come of age, and we are seeing a cohort of mature companies that are well on their journey to tap capital markets.

The success of disruptive tech business models has been well demonstrated in mature markets like US and China, where listed internet stocks contribute to ~14% and ~20% of the overall market cap respectively (Source: CITI Research). India, however, is below 2% and all tech unicorns combined, if listed, will potentially add a mere 5% to the current overall $3 trillion market cap. There is huge headroom for listed internet stocks to constitute a meaningful weightage on the Indian bourses. Indian indices have evolved with time and we have seen various companies be added to and deleted from the index. Only 30% of the companies in the NIFTY50 at launch remain in the index at the end of 20 years. IT still contributes only 16% to the NIFTY50, and we believe the emerging crop of digital companies will find place in the index in this decade as they make their way to the public markets and continue to grow at attractive rates.

India’s new economy category leaders, looking to list in the coming 12-18 months, have seen strengthening of their business models and realignment of cost structures as they have navigated tirelessly through the pandemic: they are delivering much higher margins, stronger unit economics and exhibiting scale efficiencies. They are on a visible path to profitability while continuing to grow at 50+%, presenting a compelling opportunity for investors. They have established market leadership and have become household names that even retail investors can relate to. Public market investors, who have been starved too long for this value creation opportunity offered by the Internet Economy, are also leaning on the comparables in US and China to value such fast-growing, yet to be profitable businesses, but with demonstrated positive unit economics. They are now willing to look at a longer horizon and invest at various points of profitability by building conviction on these highly scalable business models.

We are also seeing active interest from several diversified pools of capital, wanting to access these companies either in pre-IPO rounds or in IPO, to ensure eventual targeted ownership is achieved in these assets. These pools are ranging across late stage funds, sovereign funds, crossover funds, hedge funds and public market funds. Global institutions, having tasted success by investing in tech companies in more developed markets, are actively allocating capital to these high-quality Indian assets.

We have already witnessed early signs of the strong investor appetite for listed tech companies. Price CAGR since IPO of recently listed tech cos in India has shown huge growth - 500% (EasyTrip), 300% (Route Mobile), 200% (Affle),150% (Indiamart) and 100% (Nazara). There continues to be strong interest in tech QIPs as well. SEBI is to be applauded for their active role in catalysing this ecosystem and creating a favourable environment for Indian tech startups to list in India. Several initiatives such as Innovators Growth Platform (IGP), easier migration to the Main Board, and increasing discretionary allocations have made it easier for startups to access domestic capital markets. The recent proposal to move from the concept of company ‘promoters’ to ‘person in control’ is definitely a step in the right direction.

Years of hard work and persistent effort has led to this imminent value creation opportunity for all the stakeholders of the startup ecosystem and investor community. With financial support and expertise of their PE and VC investors, the startups have systemically prepared for the rigour of transitioning to a listed company, having established internal controls and mechanisms, corporate governance processes and onboarded strong management teams to continually create value for their investors.

We have 10 unicorns in our portfolio and many are on this path to be the torchbearers of listed internet in India. Through our late stage equity fund, we are providing a unique investment opportunity for investors to partner with India’s new economy category leaders and participate in the last leg of value creation from private to public. We believe this could be the golden decade of exits for digital India and like all market participants, we are excited to partner in this journey with founders to take their companies public and beyond.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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