Startups Seize IPO Opportunities Amid Market Boom

Venture capital investors are increasingly pushing their early- to mid-stage portfolio startups, including IntrCity, BHive, and Leverage Edu, to go public, aiming to capitalize on 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 (IPO) likely in the third quarter of next year, according to a source with direct knowledge of the matter. The company aims to raise $250 million from the IPO, which will largely involve a secondary component where early investors sell some of their stake to institutional buyers, the source said.

"The suggested timelines and public offering numbers are one option among several," IntrCity’s co-founder Manish Rathi said, noting that the firm is also evaluating other options with private and public investors. "We continue to seek input from all investment sources to determine the best path forward."

IntrCity, which also operates the RailYatri and SmartBus ticketing platforms, has been profitable since mid-2022. Founded in 2011, the company has raised about $30 million from investors including Blume Ventures, Infosys co-founder Nandan Nilekani’s family trust, and Omidyar Network, with its last valuation at $110 million, according to Tracxn data.

India offers more relaxed rules for companies to go public, requiring at least $100 million in revenue compared to the US's $250-300 million, allowing startups to launch IPOs earlier in their growth phase.

The push for startup IPOs is also driven by venture capital firms nearing the end of their fund lifecycles, prompting them to encourage their high-potential assets to go public to sell stakes and return capital to limited partners.

Blume-backed Leverage Edu and BHive are also expected to enter the public markets at an early stage in their growth.

“We want the best funds in the country to hold our stock for a 7-year period... an IPO could happen anywhere within a 1-4 year timeline, and I should have more clarity as the business strengthens each quarter,” said Akshay Chaturvedi, founder of ed-tech startup Leverage Edu, currently valued at about $150 million.

Office space provider BHive, which competes with WeWork and Awfis Space Solutions Ltd, plans to raise about ₹800 crore through an IPO next financial year, according to an Economic Times report. BHive did not immediately respond to a request for comment. Awfis made its stock market debut in May.

“We strongly support going public and encourage founders to take their companies public even without waiting for the mythical unicorn valuation in private markets,” said Vikram Gawande, vice president of growth at Blume. “We have a robust pipeline of companies planning to go public over the next three years.”

IPOs as a Strategic Exit

Venture capital firms are under pressure to deliver returns to their investors as they near the end of their fund lifecycles. IPOs, which were rare for Indian startups not long ago, have emerged as a viable route for selling some investments.

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 development,” 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 many $500 million to $10 billion companies.”

Among his portfolio companies, Chachra anticipates fintech startup Easebuzz, coffee-chain startup Blue Tokai, and health supplements brand BBetter to go public within 26-50 months. Easebuzz is valued at $120 million, Blue Tokai at $150 million, and BBetter at $4.6 million.

It is unclear whether these companies will be listed on the SME (Small and Medium Enterprises) or the regular board. SME IPOs are typically preferred by companies with a smaller scale and valuation when private financing no longer meets their growth needs.

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 June 20, 2023, according to Tracxn data.

Chachra noted that mid-stage startups prefer not to keep diluting their equity at low valuations during private fundraises, especially when public markets are attractive.

“For a startup to raise $100 million takes about six months in a private market. If they are a successful venture post-IPO, they can raise the same amount in two weeks,” he said.

Broad Implications

Startup IPOs have increasingly become a strategy for generating returns to investors. The proportion of offer-for-sale (OFS) options has increased over the last three years as funds look to sell stakes in startups and return capital to 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 OFS by their investors compared to fresh share issues.

However, an IPO does not necessarily mean a full exit for investors, as 60-80% of the capitalization table of several startups post-public 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 the 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, impacting the attraction and retention of high-quality long-term public investors.”

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 focused on land grab and GMV, the public market demands profitability,” he said.

While the performance of startups post-listing has been positive, Goyal emphasized the importance of not rushing into an IPO just because the market is favorable.

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