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NEW AGE COMPANIES' IPOs

Updated: Sep 22, 2021

The pandemic has nearly left an impact on every sector of the economy. On the contrary, last year and a half have been good for the start-ups which witnessed exponential growth; India has the third-largest start-up ecosystem in the world and is home to 52 unicorns with a valuation of over $1 billion. 

Food tech giant Zomato's public issue opened on July 14, 2021, for raising funds worth 9375 crores. Subsequently, the shares were listed at a 53% premium against the issue price. On the very first day, the market capitalization surpassed 1 lakh crores. But this has opened an alternative way for funding these new-age ventures, companies like Nykaa, Policy bazaar, Car Trade have already filled Draft red herring prospectus with the Security and exchange board of India. Companies use the money raised from the initial public offer for clearing the debt and funding corporate expansion. Start-ups that are big enough and mature have outgrown the venture capital and private equity funds’ ability to invest," said Manisha Girotra, country head for Moelis & Co. “These companies which need a larger pool of capital to grow are the ones readying to go to the public market."


These companies have become more popular among retail investors because most of these new-age companies operate in the business-to-consumer segment and aggressive marketing strategies adopted by them. But many industry experts have raised their concerns over the valuation of these companies. The companies to date have hugely been dependent on funding cheques received by private equity funds and investors. However, they still are low in cash and facing heavy losses. Rakesh Jhunjhunwala also pointed out his concern over the valuation and cash-burning business model of these companies. Aswath Damodaran Professor of Finance at Stern School of Business, NYU, believes the valuation of these new-age companies is too expensive, considering most of them are loss-making entities as it is right now. 


However, the current IPO spree has induced people to invest a large portion into these companies and earn short-term listing gains. For example, in the case of Zomato around 22% of the retail subscription was made by first-time investors. But this also highlights the future concerns as these investments are mostly driven by aggressive advertising strategy of new-age companies, people don’t carry proper research and this can lead to losses in long run. But despite all the concerns, the fiscal year 2021-22 is going to bring innovative changes in the securities market with a new set of investors making their way and new-age tech companies being the center stage. 


By- Sushant


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