Over the past decade, Indians have celebrated the success of local startups with multi-billion dollar valuations. In 2022, India overtook China in terms of the number of unicorns that the two countries churned out. But lately, the steep valuations of Indian startups are becoming a cause for concern — particularly as they look to raise funds from local stock exchanges.

In November 2021, Indian fintech’s poster child Paytm was listed on local exchanges at a valuation of $20 billion, in what is still the country’s biggest initial public offering (IPO) to date. But over 2022, Paytm’s shares saw a bloodbath, making it the decade’s worst performance for a large IPO in its first year.

Subramanya SV, co-founder and CEO of digital wealth management platform Fisdom, told Rest of World this isn’t because Indians don’t want to invest in tech startups. But if these celebrated unicorns want to succeed in public markets, they need to value their businesses more reasonably, he said.

This interview has been edited for clarity and brevity.

Will we see many Indian startups listing on local exchanges in 2023?

Indian capital markets have been robust in the recent few months. We are seeing several IPOs getting completed with good post-listing performance. This robustness for IPOs will continue because they are being supported by domestic retail and institutional capital, unlike earlier when capital markets relied heavily on foreign institutional investors.

The challenge for several startups will be that they are currently on a high private market valuation benchmark, which might be difficult to beat in the primary market issuance. Also, global markets for technology and internet companies are not doing well. As a combination, many startups may not meet the valuation expectations set in 2021.

Are markets ready for startups at reasonable valuations? Indeed, yes. Are companies ready for going public? Needs to be seen. We will still have several startups going for an IPO in 2023. However, the quality of the issues and the pricing will change because in the future, IPOs will be based on different parameters delinked from the global markets.

Are some of the startup IPOs that have been in the pipeline getting delayed due to macroeconomic conditions?

IPOs are delayed — but not because of the macroeconomic conditions in India. 

There are two reasons for the postponement. Firstly, the global peers of many of these companies are not doing well and hence, valuations are likely to be depressed for them.

The second reason is that Indian public markets expect profitability and/or predictability. Many Indian startups are not able to provide either of them to investors. Once they hit a path of profitability and deliver predictable growth, there will be a favorable environment for them.

What impact do you think the performance of Zomato, Paytm, or Nykaa will have on startup IPOs next year?

Despite price performance not being great till now, Zomato, Nykaa, etc., showed the path that tech companies can go public in India. Going forward, companies will be reasonable in pricing their public issues based on domestic realities. In addition, companies will also be careful to make sure that they have a clear, predictable path of growth and profitability.