This year has witnessed a steep rise in Initial Public Offerings or IPOs with 56 businesses having filed an IPO to raise INR 1,13,562 Cr
The first step towards a successful IPO is developing visibility and predictability around the company
Diversification of revenue channels to avoid major dead ends and growth stagnation is another key consideration for businesses looking to take the IPO route
This year has witnessed a steep rise in IPOs (Initial Public Offerings) with 56 businesses having filed an IPO to raise INR 1,13,562 Cr in FY21, which is more than what was raised in the preceding years 2018, 2019, and 2020. This impressive pace and scale are further driven by new-age investment platforms that contribute to the boom by helping investors open their Demat accounts and begin their investment journey or continue it without any hassles.
Given this growth rate, nothing can stop India to set a new record for fundraising despite the gloom and doom ignited by the global pandemic.
What Is An IPO?
In its simplest sense, an IPO is a process where a private company offers some portion of its shares to the public and in turn, raises money from investors. In a nutshell, it is the transition of a company from private to public. Generally, an IPO is initiated to infuse new equity capital into the company facilitating easy trading of existing assets and raising funds or monetizing the investments made by existing shareholders. When does a company reach this stage? The answer to this is when it can maintain proven profitability on the back of strong fundamentals.
IPO products are created to acquire and engage with more customers. IPOs are seasonal products and there are two kinds – Fixed Price Offering and Book Building Offering. The Fixed Price can be referred to as the issuing price that some companies set for the sale of their shares, at least initially, while Book Building is when the company initiating the IPO offers a 20% price band on the stocks.
When an IPO happens, there is often a peak in interest and buzz by customers. The first and foremost step is to discover and identify when the company wants to market it through educational content such as through blogs, videos, M-site support, google, and FB marketing, to name a few. New-age online investment platforms even offer informative blogs that can help customers understand the: What, Why, and How aspects of IPOs before they begin investing.
The Stages Of An IPO
An IPO comprises two sections. The first is the pre-promoting period of the contribution, while the second is simply the first stock sale. When an organisation is keen on an IPO, it will promote to financiers by requesting private offers, or it can likewise offer a public expression to create interest. The guarantors lead the IPO interaction and are picked by the organisation.
An organisation might pick one or a few guarantors to oversee various pieces of the IPO interaction cooperatively. The financiers are associated with each part of the IPO due to steadiness, archive readiness, documenting, advertising, and issuance.
In terms of advantages, the organisation gains admittance to speculation from the whole contributing public to raise capital. In addition, on the off chance that an obtaining objective has openly recorded offers, it can be simpler to calculate its value. A business with a requirement for quarterly reporting can generally get better credit terms than a privately owned business with expanded transparency.
Three Principles For A Successful IPO Debut
When you’re just starting out as a founder, there’s a lot to think about: Are you hiring the right people? Are you shipping fast enough? Where is your product-market fit? However, as the saying goes, dream big or nothing, a company should keep an IPO and success as a public company as a goal from the earliest days. The best way to do that is to only focus on three key rules.
Develop Visibility And Predictability
When it comes to attracting investors — public or otherwise — predictability is king. Companies with volatile growth patterns are, as a rule, less attractive than companies that can clearly predict what’s going to happen two months, two quarters, two years down the line. Companies that have a firm understanding of how they’re going to perform financially in the short and medium-term do much better than those that have unplanned results, even if they do better than anticipated.
Cementing this predictability can be painful and even tedious for early-stage companies. Everyone talks about breakout growth when the better route is to consistently put points on the board. One needs to stick to their vision and get the product right before anything else while scaling up and building revenue streams can come later.
Cater To An Existing Market
Conventional wisdom tells startups to go public when revenue hits $100 Mn. But the benchmark shouldn’t have anything to do with revenue — it should be all about growth potential. The time to go public could be at $50 Mn or $250 Mn. No matter how big you are today, the question is: Do you see a clear path to being three or four times the size you are today in two to three years?
If the answer is no, you’re going to have limited options. That’s why startups need to start thinking about this when they still have the agility to pivot or divert resources. Companies might need to invest in expanding their market, build new products, acquire competitors, or partner with companies that can expand opportunities.
If you’re still running into roadblocks, either you underestimated your prospective customer base or you’re still struggling to find product-market fit — regardless, you must have a game plan. Depending on how much runway you have, this could include international expansion, advertising, or paid user acquisition.
Eliminate Single Points Of Failure
A “single point of failure” could be one of many things: a very large customer/client, your only distribution partner, a supplier you’re completely dependent on. Basically, if your success depends on an entity external to your business to stay afloat, you’re in a sticky spot.
To avoid this trap, you must diversify as soon as possible. Growing fast as a young company sometimes means focusing and concentrating on just one distribution channel or one huge customer. But this can turn into a major dead-end down the road. As a startup leader, you might be all about landing business — any business you can.
But public investors have very different priorities. They want market size, scalability, strong financial forecasts, and continuous growth. Single points of failure pose a threat to all of these metrics.
IPOs are considered to be beneficial for the issuing companies as it enables them to increase their equity base. From an investor standpoint, it provides investors with the opportunity to earn sizable returns.
Although, today, with IPOs becoming buzzwords, most IPOs in India are oversubscribed, ultimately making the allotment a lottery-like process. Understanding the fundamentals can go a long way in ensuring investors don’t get caught up in this lottery process without all the information required.