Bengaluru: Entrepreneurs and start-ups should be ready to ride a tiger and also be under the constant quarterly radar if they raise money from the capital markets. This sentiment was expressed by industry captains on Thursday at the Bengaluru Tech Summit 2021.
Participating in the session ‘IPO opportunity and Challenges for Startups’, Manish Agarwal CEO, Nazara Technologies said companies wanting to go public to raise money from the market should weigh the pros and cons before doing so. He said companies should be willing to go under the scanner as is the norm of the market regulator to be upfront on all issues pertaining to the running of the company.
Nipun Goel of India Infoline Finance Ltd said listing the company’s shares provides financial flexibility to companies and is a tool to fund acquisitions to further growth. He said the process of going public takes six to seven months for companies who want to take the IPO (initial public offering) route.
Companies are also looking at higher valuations as they raise capital to fund their growth and business activities, he said.
Salil Pitale of Axis Capital said for the small companies IPOs mean currency to achieve growth. He said companies wish to take the IPO route as most of them are of the view that it is the path to profitability. However, the constant scrutiny of the performance of the company post-IPO is something that the promoters should be willing to take questions from shareholders on the decisions impacting all of them.
Agarwal said it is a myth that selling shares by promoters means unlocking shareholder value. He said such moves should be followed or preceded by proper signaling and a narrative that is conducive for investment.
Pitale said it is necessary for promoters to communicate why they were offloading their stakes with justifiable reasons. However, worldwide it is seen that in tech companies stakes held at promoters may not be a large percentage to warrant any untoward reaction if they decide to sell a percentage of their holding.
Goel said loss-making companies are allowed to list on the markets and the regulators are constantly scrutinizing the financials in the pre-IPO and post-IPO scenarios. He said the bigger the issue size better it is for the companies as they go about raising money via the capital market. Markets have become institution driven and mutual funds have become big and so a small-sized IPO is challenging for the companies wanting to raise money.
Agarwal said startups looking to return debt and grow their business choose the IPO route. However, companies should have a contingency plan if markets are not conducive.
Goel said investors do not favour volatility but good companies are always good buys for investors in the market.
Pitale said companies who are doing due diligence on the IPO route to raise money should brace themselves for a Plan B and hit the market when the time is right./eom.
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