Why startups should aim for an IPO

By  Vedant Goel 

Initial Public Offering (IPO) is one of the most important milestones in the journey of a company. Not only does it reflect on the fact that a company has matured, it also shows that the company has exhibited growth and intends to accelerate faster. When a company reaches a stage where it can think of an IPO, it means that its processes, team, and business are in place; and the company is ready to set sail in deeper waters.

In order to become a $5 trillion economy by the year 2024, India needs as many companies as possible to undergo its IPOs. Which means more startups will need to turn into industry giants. To boost startups and allow them to enter the larger capital markets, government has recently started listing startups on the Bombay Stock Exchange (BSE) Startup Platform.

For a company to get listed, it needs to have matured its processes, systems, business, leadership, and team. It should be a growing company, and its business should reflect that. Also, the founder(s) must see a purpose behind the IPO. The leadership should have a clear objective in mind of what it wants to achieve by getting listed.

Once the decision on getting listed is made, the founder(s) need to reach out to merchant bankers to decide on where exactly do they stand. The company’s valuation should be clear, along with the understanding of whether the company is eligible for an IPO.

Who can get listed

BSE Startup platform facilitates listing of companies from different sectors; which include IT, ITeS, biotechnology and life science, 3D printing, space technology, e-commerce, Hi-tech defence, drones, nanotechnology, artificial intelligence, big data, enhance/virtual reality, e-gaming, exoskeleton, robotics, holographic technology, genetic engineering, variable computers inside body computer technology, and other hi-tech sectors.

Additionally, the company should have either registered itself as a startup with MSME/DIPP, or should have a paid-up capital of minimum Rs. 1 crore. At the same time, the post issue paid-up capital of the company (face value) shouldn’t exceed Rs. 25 crores. The company should be at-least two years old, and its net should be positive.

Besides having a website, the company should facilitate trading in Demat securities and be in an agreement with both the depositories. Also, there should not be any change in the promoters of the company during the past one year from the date of filing the application.

How to get listed

Once a company has planned to get itself listed on the BSE Startup Platform, going for the IPO is about a year-long process. The company needs to first identify and appoint the Merchant Banker, who is responsible for conducting all due diligence of the company including financials, approvals, etc. The Merchant Banker is also responsible for planning the IPO structure, share issuances, and financial requirements.

The next steps include capital restructuring, auditing, and submission of the DRHP/Draft Prospectus by the Merchant Banker to BSE. BSE then sends its staff to conduct their due diligence, who verifies the company’s is genuinity. Soon afterwards, an advisory committee from BSE interviews the promoters on financials, purpose, processes, and other things; and if they find the company up to the mark, the listing gets approved.

Benefits of listing

“Getting listed is the dream come true for any company,” says Anshu Goel, CEO of Alphalogic Techsys Limited, a Pune-based bespoke software consulting firm, which has announced its IPO recently. Anshu’s company already caters to clients’ software needs from over 12 countries including Australia, USA, and UK; which include Fortune 500 companies, established small and medium businesses, and early stage startups.

“We have been able to create value for our investors, clients, and employees over the past years. An IPO would mean we’d be able to raise capital through equity infusion. It will also increase our credibility and valuation in the market tremendously,” Anshu said.

“We aim at building newer clientele and expanding the team. If we come across a suitable buyout or a merger opportunity that aligns with what we do, we wouldn’t mind exploring such options either,” he added.

As Indian startup ecosystem matures, it is time for more and more companies to get listed in the BSE Startup Platform, so they can foray into the world of finance for further growth and development. These startups will receive assistance to raise equity capital for their expansion, and in due time, become eligible for listing in the BSE Main Exchange.

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