Tech IPOs are finally getting real in India
Tech companies going public are a rarity in India. But that could change in the coming months with at least three homegrown tech companies eying a domestic listing.
Chennai based Matrimony and Bengaluru headquartered Tejas Networks are very close to a public offering, whereas Mumbai based BookMyShow has been hinting at it recently.
This will give tech investors something to cheer for in a market that has given them anaemic returns so far. Matrimony and Tejas Networks are reportedly raising over Rs 1,200 crore from the domestic bourses.
The success of these IPOs could lead to more listings in the near future, as the public markets are ‘very warm’, according to experts. “The public market is very warm right now. People should consider listing in the next 6-8 months,” Mohandas Pai, Chairman of Manipal Global Education told FactorDaily. Pai, who led the public offering of Infosys at the Nasdaq says that for startups that aren’t yet profitable, the proposed board for high-tech startups is an option.
“The financial investors at the end of the day look for exits and IPO is an important exit strategy. It also sends positive messaging to the global investor,” Sanjay Nayak, the founder of Tejas Networks told FactorDaily. His company is likely to go public sometime in the Jan- March 2017 quarter, although Nayak wouldn’t comment on the specifics of the offering.
With the listing of Matrimony, Bessemer Venture Partners, which owns 9.89% in the company and others like Mayfield Mauritius are expected to sell their stake. Janakiraman is the majority shareholder in the company with 79.63%. Yahoo and Canaan Partners were also investors in the company which was founded in 1997, but did not hold on to their stake.
Tejas Networks, founded in 2000 is reportedly valued at Rs 2,400 crore and is looking to raise Rs 800 crore, according to The Economic Times (Nayak said that these numbers were ‘speculative’ and declined to comment on it.) Its investors, including Battery Ventures, Goldman Sachs and Intel capital are likely to exit.
Note that both companies have had IPO plans that had to be shelved earlier due to market conditions. Also, the two companies have been conservative in raising venture capital as compared to the likes of Flipkart and Quikr, that have raised hundreds of millions in venture capital.
What has changed?
Firstly, there have been two moderately successful tech initial public offerings this year. Ahmedabad headquartered Infibeam, raised over Rs 450 crores through a public offering which was oversubscribed (1.1 times). Quickheal, an antivirus company raised Rs 451 crores from the public market in an offering that was oversubscribed nearly 11 times.
“Now there is good understanding of the internet companies and their dynamics, earlier it was not the case,” Murugavel Janakiraman, the founder of Matrimony told FactorDaily. Indeed, with the likes of Flipkart, Snapdeal and Ola dominating news coverage, there’s a lot more awareness about startups and tech companies in general.
Secondly, both companies have gotten to profitability (a condition necessary to list in India), even though it has taken them long. “You still have to be profitable to list in India and we have been profitable. Listing in India will give us more visibility to grow,” Janakiraman said.
For its part, capital market regulator Sebi has taken a progressive approach to startup listing. In July, it proposed to ease up regulations for startups looking to raise money. The Institutional Tradition Platform (ITP) proposed by the Securities And Exchange Board Of India (SEBI), will only lock in promoter capital for 6 months, as opposed to three years currently. It has also relaxed disclosure norms for listing. “This is another option for loss making tech companies in India. Hopefully, SEBI will approve it soon,” said Pai who has been spearheading software product think-tank iSpirt’s efforts to create a separate listing board for startups and tech companies. However, to protect retail investors, SEBI only allows institutional investors and High Net Worth Individuals to invest on the platform.
The listings are coming at a time when there is a lot of conversation around exits from India among the venture capitalists. “This will definitely lift the mood and make foreign VCs more comfortable investing. Exits have been the biggest problem for VC in India,” said Sharad Sharma, angel investor and founder of iSpirt.
In 2016, EY estimates that nearly $5 billion will be raised by companies across sectors (not just tech) from India’s capital markets. This is a good start but not nearly enough to send every global investor scurrying to invest in Indian tech companies when there are startups in their backyard. For comparison, look at the United States. Although 2015 was considered the worst year for IPOs since 2009, 28 tech companies raised $9.4 billion last year.
Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.