Updated: November 12, 2021 8:19:36 am
On November 8, fintech major Paytm’s initial public offering (IPO) opened for subscriptions. At Rs 18,300 crore, this was India’s largest ever IPO. The IPO comes on the heels of another startup, Zomato, tapping the public markets recently to raise capital. On Wednesday, Nykaa, the beauty startup, saw its market value almost double to over Rs 1 lakh crore on its stock market debut. Buoyed by the success of these companies in tapping the public markets, several such unicorns (startups valued at over $1 billion) are in the process of firming up their IPO plans. This not only attests to the depth of the domestic capital markets, and the willingness of investors to back these startups, but is also a promising sign for the larger startup ecosystem, one of the most vibrant parts of the Indian economy at the moment.
Reports of new unicorns being created are now a regular feature. These unicorns exist not only in well known segments such as e-commerce and fintech, but also in other verticals such as logistics. An earlier report by Credit Suisse had traced their phenomenal rise to a confluence of factors, amongst which is the increasing ability to transact digitally. Platforms like the Unified Payments Interface have transformed the digital payments ecosystem in India. The pandemic has only accelerated the pace of adoption of such modes of transaction — UPI recorded a staggering four billion transactions in October this year. This shift towards digital modes of transaction has been facilitated by the Aadhaar platform, which has greatly eased the verification process, and the sharp rise in internet users across the country. The latter has been driven by the phenomenal rise in mobile data usage owing to the collapse in data prices. Then there is also the concomitant improvement in physical infrastructure aiding economic activities — the report points out that road connectivity has improved significantly as have household electrification rates.
However, their current valuations do raise eyebrows. The multiples being commanded may seem stretched. For instance, Zomato’s net loss widened by 87 per cent to Rs 430 crore in the second quarter of the ongoing financial year. The company is valued at over Rs 1 lakh crore. Similarly, consolidated losses for One97 Communications (Paytm) stood at Rs 381.9 crore in the quarter ending June 2021. But the ability to raise such huge amounts of capital signals the presence of a large pool of risk capital available to Indian companies. Investors, both private and public, are increasingly willing to back disruptors, taking a longer view. Beijing’s crackdown on China’s tech sector is only likely to facilitate greater foreign capital flows towards such companies. The policy/regulatory environment also needs to be conducive, however, for this ecosystem to flourish.
This editorial first appeared in the print edition on November 12, 2021 under the title ‘Startup moment’.