Stormy Street wrecks IPO plans, but startup investors have other plans

Mumbai: Startup investors are turning to mergers and acquisitions (M&As) and offering their shares to new incoming investors, as severe market turbulence dashes their dreams of cashing out through initial public offerings (IPOs).

Companies which had chalked out IPO plans but are dragged by weak financials will likely see M&As and so-called secondary share sales, experts said. The steady fall in stock markets since October and the latest flare-up from a tariff war have queered the pitch for IPOs, prompting investors to scramble for new exit routes.

According to Foundamental, a venture capital firm, the last few months have seen several investors offering to sell their shares in M&As or through secondary sales.

“While these (M&As and secondary sales) typically haven't come with the valuation premium that we used to see in the 2020-2022 cycle, the fact that there are market participants who are stepping in with such offers is a positive sign that well-run companies might have other options that provide a valuation backstop,” said Shubhankar Bhattacharya, co-founder & general partner at the firm. He did not disclose specific names as the conversations are still ongoing.

Read more: Is it an office or a hotel? Investors repurpose spaces as sellers hold out

Market volatility

Last week, logistics firm Delhivery acquired smaller rival Ecom Express for over ₹1,400 crore, in one of the biggest acquisitions in the sector. The company that had filed for an IPO as recently as August suspended the plan and laid off at least 500 employees in February, Mint reported. British International Investment, Warburg Pincus and Partners Group, among others, will sell their Ecom shares to Delihivery, which went public nearly three years ago.

At last month's Mint India Investment Summit, Warburg Pincus India managing director Vishal Mahadevia said investors are looking at various exit options amid macroeconomic challenges, adding many are turning to private market exits. Others such as Quadria Capital, QED Investors, and Prime Venture Partners have also alluded to the available exit options.

“Stock market volatility will have an impact on the overall exit environment for portfolio companies across private equity; however, Quadria Capital ensures that we prepare for the exits of our portfolio companies early and do not solely rely on the capital markets as the only exit path,” managing partner Amit Varma said.

IPO slowdown

Meanwhile, fintech-focused QED expects to see an increase in M&As because of the slowdown in IPOs.

“In other situations, companies can explore additional rounds of private capital, as a bridge round or pre-IPO round to get more funding,” QED’s partner Sandeep Patil said, adding there is also likely to be an increase in private equity investments in late-stage tech companies if they have the right financials. “In such cases, venture investors may take an exit through secondaries.”

Droom, an early-stage startup, is evaluating alternate strategies like raising fresh funds, although it did outline plans to revive an IPO plan, according to a VCCircle report.

Post-IPO show

Several PE and VC firms have launched dedicated funds to explore secondaries as an active strategy. Some examples include Kenro Capital, led by former Peak XV MD Piyush Gupta, and Oister Global and Tribe Capital’s $500 million India-focused fund, which was launched last year.

The poor post-IPO stock performance of companies such as Swiggy, Ola Electric and FirstCry which are trading below their issue price, have also raised about going public, Lightbox Ventures partner and managing director Sandeep Murthy said. “The market is still learning to evaluate these businesses, their models, and their growth potential. All of this means there will be some mispricing for a while, but things will eventually settle,” he said.

Prime, which prefers M&As and IPOs, will also consider secondary sales as an alternate strategy for interim liquidity, co-founder and managing partner Sanjay Swamy told Mint after it launched its fifth fund in March. The fund's IPO candidates include Niyo and MyGate. Its exits so far include Happay (acquired by Cred), Recko (Stripe), Perpule (Amazon), Ezetap (Razorpay), and Tracxn after its IPO.

Read more: Mint Explainer: Global and Indian markets crack under Trump’s tariff shock—what this means for investors

Several companies are also facing a reassessment of their valuations and issue size as geopolitical tensions and macroeconomic challenges sent equity markets into a tailspin since the beginning of this year.

However, not all is doom and gloom. While some companies wait for better days to list, the IPO window is still ripe for high-quality companies. Startups like Physicswallah have pursued confidential IPO filings to keep their listing timelines flexible and manage market volatility, Mint reported in February. Others including Kissht, Turtlemint, Meesho, PhonePe and Lenskart are working with bankers for an IPO soon, joining the growing list of other high-profile public issues such as Groww and Zepto.