Bengaluru/Mumbai: Venture capital investors are increasingly encouraging some of their early- to mid-stage portfolio startups, such as IntrCity, BHive, and Leverage Edu, to go public, hoping to take advantage of a bullish stock market and return capital to their investors.
Mobility startup IntrCity is in early discussions with investment bankers for an initial public offering likely in the third quarter of next year, a person with direct knowledge of the matter told Mint. The company intends to raise $250 million from the IPO, which will entail a large secondary component where early investors sell some of their stake to institutional buyers, the person said.
“The suggested timelines and public offering numbers is one option for us among several others,” IntrCity’s co-founder Manish Rathi said, adding that the firm is also evaluating other options with private and public investors. “We continue to seek inputs from all investment sources as the best path forward for us.”
IntrCity, which also operates RailYatri and SmartBus ticketing platforms, says it has been profitable since mid 2022-23. The company, founded in 2011, has so far raised about $30 million from investors including Blume Ventures, Infosys Ltd co-founder Nandan Nilekani’s family trust, and Omidyar Network, and was last valued at $110 million, according to data from Tracxn.
India offers more relaxed rules for companies to go public—requiring at least $100 million in revenue as compared to the US, which mandates at least $250-300 million—allowing startups to launch IPOs much earlier in their growth phase.
The rush for startup IPOs also comes as several fund managers are sitting at the end of their fund lifecycles, prompting them to encourage some of their trophy assets—even those at a fairly early or mid-stage—to go public so they can sell some stake and return capital to their limited partners, who are investors in their funds.
Blume-backed Leverage Edu and BHive are also expected to tap the public markets at a fairly early stage in their growth.
“We want the best funds of the country to hold our stock for a 7-year period… an IPO can happen anywhere on that 1-4 year timeline, and I should have more clarity as the business becomes stronger every quarter,” ed-tech startup Leverage Edu’s founder Akshay Chaturvedi said, adding that the company is taking a measured approach amid the frenzy to go public. It is currently valued at about $150 million.
Office space provider BHive, which competes with the likes of WeWork and Awfis Space Solutions Ltd, plans to raise about ₹800 crore through an initial public offering in the next financial year, according to an Economic Times report published in August. BHive did not immediately respond to Mint’s request for comment. Awfis made its stock market debut in May.
“We have been strong proponents of going public. In fact, we encourage founders to take their companies public even without waiting for the mythical unicorn valuation in the private markets,” said Vikram Gawande, vice president, growth, at Blume. “We have a strong pipeline of companies going public over the next 3 years.”
IPOs: a faster, cleaner route
Several venture capital firms are under pressure to deliver returns to their investors as they near their fund lifecycle, and IPOs—a rarity for Indian startups not too long ago—have emerged as a viable route to selling some of their investments.
Also, global investors are optimistic about India as exit avenues such as mergers and acquisitions, IPOs, and secondary share transactions have opened up.
“The IPO market opening up is the healthiest thing,” said Vikram Chachra, founder of early-stage VC firm 8i ventures. “While we will have our own club of… $50-100 billion companies, there will be lots of $500 million to $10 billion companies.”
Among his portfolio companies, Chachra anticipates fintech startup Easebuzz, coffee-chain startup Blue Tokai, and health supplements brands BBetter to go public in 26-50 months.
Easebuzz is currently valued at $120 million and Blue Tokai at about $150 million, while BBetter has a valuation of $4.6 million.
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Whether these companies will be listed on the SME (Small and Medium Enterprises) or the regular board is unclear. SME IPOs are typically preferred by companies with a much smaller scale and valuation when private financing can no longer meet their growth requirements.
In August, Zappfresh filed its draft IPO papers with the Securities and Exchange Board of India to list on the BSE SME platform. The direct-to-consumer meat delivery startup was valued at $42.3 million as of 20 June 2023, according to Tracxn data.
Chachra explained that mid-stage startups don’t want to keep diluting their equity at low valuations during private fundraises, particularly when the public markets are attractive.
“For a startup to raise $100 million takes about 6 months in a private market. If they are a successful venture post-IPO, they can raise the same amount in a span of 2 weeks,” he said.
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Startup IPOs: Initial private offering
Broadly, startup IPOs have increasingly become a function of generating returns to investors. The proportion of offer-for-sale options has increased over the last three years as funds look to sell part of their stakes in startups and return capital to their investors.
Honasa Consumer Pvt. Ltd (Mamaearth), Go Digit General Insurance Ltd, Awfis Space Solutions Ltd, Le Travenues Technology Ltd (Ixigo), and Brainbees Solutions Ltd (FirstCry)—which went public over the past year—all had a higher proportion of offers-for-sale (OFS) by their investors as compared to fresh share issues.
However, an IPO does not necessarily mean a full exit for investors as 60-80% of the capitalisation table of several startups post a public market listing remains with private backers, said Alok Goyal, founder of early-stage VC firm Stellaris Venture Partners.
“While some liquidity can be achieved as part of OFS at the time of IPO, an overeagerness on the part of private investors to achieve liquidity can put a lot of pressure on the stock, and do damage towards attracting and retaining high-quality long-term public investors.”
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Chachra added that the current IPO euphoria is similar to the exuberance during the private market funding of 2021, when Zomato Ltd kicked off India’s startup IPO journey. “Unlike VCs in 2021, who were focused on land grab and GMV, the public market demands profitability,” he added.
GMV, or gross merchandise value, was a prized startup metric used to measure a company based on the total worth of the products or services sold without taking into account factors such as discounts, offers, and other expenses. GMV eventually gave way to more sustainable metrics such as unit economics and profitability as investor money used to fuel growth dried up.
While the performance of startups post-listing has been positive, Goyal said it was important not to rush through an IPO just because the market is hot.
“It is important that the company is at a scale and stage where it can make and meet its predictions… if done too early, it can hurt both the company and the investors,” he concluded.
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