Dealing with next-gen listings

Investors are starting to realise that new-age companies are a completely different animal

- AKASH PRAKASH

If one were to take a step back and look at the listings of the wave of venture capital or VC-backed next-gen companies in India, they have been a decidedly mixed bag till now. Zomato hit the markets almost 18 months ago, with the issue going live on July 14, 2021. Subsequently, we had a gold rush of sorts and multiple companies listed.

It was an amazing monetisation opportunity for the VC/private equity ecosystem. India had finally arrived on the global VC stage. India had the third largest start-up ecosystem and public market investors were falling over themselves trying to get allocations in the new listings. The markets seemed mature enough to value and price all types of business models at various stages of profitability.

Unfortunately, the performance of the vast majority of the new listings has been mediocre. Most trade more than 50 per cent below their peaks and below the initial public offering (IPO) price itself. It has been a bloodbath for any investor involved in these companies after their listings. With the benefit of hindsight, valuations at listing were way too generous. Everyone in the system got carried away. This was, however, not unique to India. We have seen similar dynamics at work for new listings even in the US. Rising real rates have forced a valuation correction for all long-duration growth assets.

This mediocre outcome throws up many questions and learnings for all players involved. The narrative among market players is that somehow the equity markets were hoodwinked and sold a lemon and the VC folks made away with profits like bandits. To be fair, public market players cannot wish away their mistakes. No one forced them to buy the shares at the valuations proposed. But most could not resist the temptation to participate.