Sanjeev Bikhchandani decoding the IPO story: When, How and Where
If you are an entrepreneur, then most probably at some point, you must have thought about taking your company to an IPO (Initial Public Offering), even though it may be currently far out in the journey. According to a recent survey conducted by the RBI (Reserve Bank of India), about 58% of startups plan on getting listed on the Indian stock exchange in the next five years. However, the coveted feat has not been achieved by even a fraction of the startups. In an environment where funding comes comparatively easy, it’s intriguing to know that out of 80,000 startups in India (as of Dec 2019), only a handful have gone public in the last 10 years. On the other hand, Chinese tech firms have topped the world in the number of IPOs in the global tech community.
So, why is it so tough, what does it take and what goes behind an IPO — a process that still remains the gold standard of recognition for a company coming of age.
Over the years, a lot has been written on IPOs, but none of it decodes the story with such clarity as from the man who led India’s first dotcom IPO- Sanjeev Bikhchandani, Co-Founder of Info Edge India. In one of the episodes of our award-winning Podcast — Building It Up with Bertelsmann, we had the opportunity to get candid with Sanjeev Bikhchandani on his fascinating IPO story. He not only talked about the tangible aspects of the IPO journey, but also shared insights on how to build businesses that last, what today’s generation of entrepreneurs lack, and much more!
Here are a few interesting excerpts from his episode:
When to go for an IPO?
“In 2006, we were told that if you have a hundred crores as an Indian company turnover, and making a 15–20% profit, you’re a good candidate to go public”
While the conventional wisdom says that startups can usually go public when the revenue hits anywhere around $50 Million-$100 Million, the numbers have increased to a few more hundred crores today. However, for Sanjeev, the benchmark was never limited to revenue, but was always more about the growth potential. He believes that to really know if a company can go for an IPO, it is also important to know if a company can really service the listing and can give the investors a return.
All-in-all, a company should be of a certain size, scale, profit and have a certain year of growth with enough visibility to show that this growth will continue to happen in the foreseeable future.
How to prepare for an IPO?
“We were talking to people, bankers, lawyers, others who’ve gone public”
It really comes down to how deep your network is especially with people who have been there, done that, or at least have helped others go public when it comes to preparing for an IPO. For Sanjeev, the story was no different. He didn’t shy away from talking to people, CFOs, bankers, lawyers to take the company through this arduous process. In fact, prior to the IPO, it took him almost a year and a half just to restructure the board. Over that period, he not only talked to people who had gone public, but also worked on the processes, staffed up, brought in a large number of senior directors and went through multiple statutory audits and trainings.
Where to IPO?
“As founders and promoters, we were more comfortable in India”
Currently, the laws impede those whose management is based in India from going public overseas (the current approach of many successful Israeli start-ups) without first going public in India. In fact, the government passed this ruling in the middle of 2005, when Sanjeev was in the midst of weighing NASDAQ vs NSE or BSE. So, indirectly it was the government that took the decision for him, and nonetheless, he was quite happy since he knew the Indian landscape well. Interestingly, even though NASDAQ might have given his company a higher valuation, Sanjeev still did not choose the option of going overseas. He realized that NASDAQ was probably more brutal as a market considering the regulatory, compliances, and the cost of servicing in a listing there.
However, contrary to this, there has been an interesting trend in the recent past. Even though there are many companies that are happy being listed in India, lately, there are some startups that have started incorporating elsewhere. According to an analysis by Tracxn, a research partner, 50 out of 73 SaaS firms in India that received at least $20Million each in funding, have headquarters outside India. Thus, it is now increasingly becoming important for India to truly unleash its huge startup potential and lure companies, just like the US, with better protection of intellectual property, lower taxes, less complex rules, and a deeper network within the startup ecosystem.
Making the decision: Private vs Public?
“If I had to do it again, I would still go public”
For both VCs and startups, IPO has undoubtedly remained an important milestone in the long road of building a lasting and successful business. Even though going public has its own advantages and disadvantages, the choice for Sanjeev has always been very clear. Even today, if he had to do it all over again, he would still choose to go public rather than private. He believes that an IPO puts a company in a very different strategic space and kind of makes the company un-acquirable and independent.
In the coming years, there is no doubt that there will be more startups, which are of size and scale, that can go public, however, whether they choose to go Sanjeev’s path or not remains to be seen. They realize that an IPO comes with a bunch of extra responsibilities as the company has to deal with more regulations and compliances. So, as long as the private markets continue to flush with enough cash and cut big cheque sizes, startups might actually continue to choose to be private!
Tune in to the podcast here to catch the full episode of Sanjeev Bikhchandani’s as he shares more insights on his IPO journey.
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https://www.techcircle.in/2020/01/02/58-indian-startups-plan-to-go-public-in-the-next-five-years-rbi
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