Many startups that choose to go public are achieving higher valuations in the public markets compared to their private fundraising rounds. With strong fundamentals and a clear path to profitability, startups are attracting the attention of retail investors today, analysts say.
Brainbees Solutions, which operates baby care retailer FirstCry, saw its valuation rise 44% on the day of listing, rising to Rs 32,783 crore from its last known valuation of $2.7 billion or Rs 22,698 crore in early 2023. Valuation of managed office and coworking provider Office rose 53% to Rs 2,909 crore on listing day in May from $226 million or Rs 1,900 crore in September 2023, when it raised its latest round of valuation. As of November 1, 2024, its valuation has further increased to Rs 4,828 crore, 2.5 times more than its previous private valuation. In its recent IPO, SoftBank-backed Unicommerce was listed with a market capitalization of Rs 2,152 crore, indicating a market capitalization to sales ratio of 20.7.
Experts say companies with established revenue streams have always achieved higher valuations during IPOs and startups are no exception. “Many of these startups have demonstrated strong business models and revenue growth, which has greatly increased investor confidence,” Acidius founder and CEO and angel investor Somdutt Singh told FE. A more favorable regulatory environment for IPOs has also contributed to this trend.
Office, Go Digit, TBO Tech, Ola Electric, FirstCry, ixigo and Unicommerce are some of the startups that have gone public this year. Analysts also say that the overall bullish sentiment in the stock market has increased demand for technology stocks, especially those with strong growth potential.
“India’s strong regulatory environment, coupled with increasing focus on domestic unicorns and high-quality companies, is driving a surge in IPO listings despite global economic challenges,” said Nritya Madappa, Partner by 3one4 Capital. “In this IPO-friendly environment, we are also seeing public savings being channeled into equities at higher rates.” According to the Association of Mutual Funds of India (AMFI), the total assets under management (AUM) of the mutual fund industry hit a record high of Rs 6,670,000 crore in August 2024, an increase of about Rs 16 crore. lakh in 2024. is driven by rising capital inflows and growing investor interest.
The growing IPO profits for startups today are also due to retail investors’ confidence in startups after successful IPOs led by startups like Mamaearth. When Mamaearth parent Honasa listed on stock exchanges in October last year, its valuation on the listing day was about 23% higher than its last known valuation in the private funding round. Additionally, investors are also evaluating startups based on their scalability and the size of their target markets. For example, experts point out that companies like Zaggle are penetrating vast markets with their innovative solutions, making them attractive to public investors who want long-term growth potential. As of November 1, 2024, the fintech startup had a market capitalization of Rs 5,285 crore.
Startups that secure significant investment before going public also often have inflated valuations. This is because investment from established companies can validate the startup’s business model and provide additional credibility in the market. For example, Zomato raised funding from high-profile investors such as Ant Group and Tiger Global, resulting in a valuation of nearly $5 billion ahead of its IPO in 2021.
The success of these startups in the public markets is likely to positively influence future funding rounds. As public valuations rise, private investors can adjust their expectations accordingly. “Startups seeking funding can take advantage of these higher public valuations to negotiate better terms during funding rounds,” Singh said. The report shows that Series A funding rounds starting in 2024 have seen an average increase of $18 million compared to previous years.
