Tech IPOs Take an L 🔻

CHART OF THE WEEK 📈

2021 was the year when many tech investors saw their first exit in the form of an IPO. The startups in this graph raised approximately Rs. 45,000 crores in total!

• Zomato was the first of the Indian technology startups to go public on the stock exchanges. It has since dropped 55% from its original listing price

• Performance of the other startup IPOs too has been nothing but dismal. Heavy losses for anyone who has invested after being influenced by all the hype around these companies

• However, a few stocks, such as MapMyIndia and Rategain, have done well. Surprisingly, the ones that have done well have all been founded in the 1990s and early 2000s

What’s been different about these companies?

1. When the decent-performing-IPO startups were founded, funding was scarce. This caused them to become more focused on their business model and seek more sustainable revenue streams, and also focus on monetisation and profitability way before their newer peers did

2. Global and Indian venture capitalists have been pouring money into the next generation of technology companies. This means that in a race for customers and market share, they frequently incur large losses. A high burn may be a good metric for VCs, but definitely isn't for public investors

3. In line with the trend globally, the Indian public markets have punished high-growth but loss-making stocks. Companies must focus on developing a solid path to profitability if they are to succeed beyond the IPO stage