Your favorite startups are scamming you.

Something fishy is going on with Indian startups, their valuation and their proceeding IPOs. As soon as I started researching about it, I found out a lot of loopholes and patterns that might end up public’s interest in these stocks. But more important — are they scamming you?

Watch this in video :

Hey everyone this is Udit Akhouri,and today, we would be discussing some serious patterns that I observed in the listed Indian startups and would try to decode whether we are being scammed or not!

But first,

Try to find something common in this companies-

1. Zomato
2. Veranda Learning
3. Nykaa
4. Paytm

Found?

Well, all these are Indian startups which got listed in the last l8 month. However, there’s something more than common in these stocks.

You see, all of these 4 companies were having very strong financials at the time of their listing, when compared to other privately valued startups.

Just for example, think of Unacademy,

It was found in 2015,

In FY2021, it made over 450 Cr rs.

And in FY2022, it made over 850 Cr rs in revenue.

This, when compared to its losses of 1,500 & 2800 Cr Rs. in same Financial years, doesn’t look appealing.

But remember, these are startups, and as per some experts, it’s okay to lose a few hundred crores if you want to play it big.

And I really don’t have any problem with startups losing money.

But things slightly change when you compare it with its 3 year old counterpart. Yes, I am talking about Veranda learning.

Now, Veranda caught my eyes just a few days back when one famous trading platform that I also use, recommended me of buying this.

And as soon as I looked into their finances, I understood that something is not right.

This EdTech company claims to be one like Byjus and Unacademy, but unlike them,

Veranda started just 3 years back and last year, it had its IPO.

But what’s even more uncommon than its baby age, is that, at the time of their IPO, their revenue suddenly increased by over 400%.

And then, after they went public, the revenue dropped by over 50% again.

To me, this looks really fishy because, how on-heck can a 3-year old company making 1–2 cr revenue, suddenly increase its revenue to 15 cr and 59 cr in next 2 quarters, latest to its IPO and once that listing is done, that revenue crashes by over 50%!

And this pattern is common with almost every startup that got listed in past 2 years.

Think of Delhivery, whose quarterly revenue, somehow by miracle, jumps to over 500% before their IPO and crashes over 60% just after listing.

Or Nykaa, whose quarterly profit increased to over 2400% at the time of their IPO and then 70% of it vanishes over time.

The exact same pattern is observed in Paytm, Zomato and any other VC-backed startup that went public in the past 2 years.

But now comes the major question, what does this pattern tell us?

See, in the 1st case, it might be a coincidence, and I am literally telling you that I pray this to be true.

Because, in the 2nd case, things are heavily fishy. Why? Because this looks like an organised manipulation of financial data from the company’s balance sheet, just before it applied for an IPO.

In my opinion, this can be a classic case of unbearable pressure from the investors and a bad risk management strategy of the company’s management that forced them to manipulate this data.

Now, you have to understand this — if an investor has given you some X hundred crores, it’s your duty to give them a good return. But how is this return calculated in a loss-making, highly illiquid startup?

Simply, Through its balance sheet.

So, if a company is growing its revenue by huge numbers, making some profits or decreasing losses, then, you can expect that the company is growing.

But obviously, founders are no Gods and sometimes, numbers can be dissatisfying.

So what do you do? You start manipulating your financial numbers and Start providing altered figures in your private balance sheets.

And this happens. Just go and Google, you’ll find a lot of examples where companies recreate and fix their balance sheet.

Now, when these companies become much bigger “in terms of being privately valued”, management suggests an exit by filing an IPO.

You see, for many non-VC backed ventures, an IPO is a source of raising funds to expand and scale but for startups like Zomato, it’s an exit for investors who don’t believe in the company anymore.

Investing in such startups through an IPO is like investing in a company whose founders are going on a very long vacation with no plans to come back.

So, what happens next?

These companies do some miraculous sales and risk management in just 2–3 quarters prior to their IPO and once the listing is done, it all becomes fairy dust.

Because, in a realistic world, no company can attain such huge numbers in a matter of 1–2 quarters and even if it does so, why does it crash after listing?

Why does the peak revenue/profit quarters coincides with the quarter of its IPO?

The answers are hidden inside the lines but if you ask my opinion, I won’t risk my money in fulfilling the needs of a manipulative board of a company.

So, that was the 1st episode of Behind the Market series, I will be coming back with more such videos soon.

But more importantly, if you want to raise capital from an investor who won’t panic you to artificially pump sales, you can pitch your idea to me anytime at Uditakhouri.live or through my investment firm, Aim Capital.