The KPI conundrum for tech start-ups

Tech start-ups do not reveal important numbers to back their narratives of consumer flywheels and unrelenting growth

- DEEPSEKHAR CHOUDHURY

Loss-making new-age companies are going to the stock markets demanding stratospheric valuations Paytm and Policy bazaar were priced at more than 50 times FY21 revenue, Zomato at 20 times FY21 revenue, Nykaa sought a multiple of 23 times - but they have done little to explain their reasons for doing so.

This trend may be about to change as markets regulator, the Securities and Exchange Board of India (Sebi), announced a raft of proposals last week seeking to mandate disclosures of audited Key Performance Indicators (KPIs), details of pre-Initial Public Offering (IPO) deals with private investors and justification of IPO pricing, among other things.

"Sebi's efforts are important to ensure that the public market investor is not presented with a black box at the IPO. Although it is said that valuations are generally high in the private market where start-ups raise money from VCs (venture capitalists), we do get detailed valuation reports made that show the math in a sense," said Siddarth Pai, managing partner at VC firm 30ne4 Capital.

On one hand, these tech companies have repeatedly said not to judge their companies by the same yardsticks of balance sheet fundamentals. On the other hand, they have also not shared important facts and figures to back their narratives of consumer flywheels and unrelenting growth.

For instance, Paytm did not shed much light on its loan disbursals in its draft red herring prospectus (DRHP) - and started revealing more about its credit statistics only after a battered listing. Online hotel aggregator Oyo, which is present in more than 35 countries and considers certain European and Southeast Asian markets as key drivers of growth, does not say how well those geographies are doing individually in its IPO prospectus.