Indian startups are witnessing a substantial improvement in their profitability in the fiscal year 2024 (FY24), and a recent report suggests that nearly 50 percent of India's unicorns will achieve profitability by the fiscal year 2027 (FY27). However, scenario for about 20 percent of unicorns doesn't seem too promising as they are likely to struggle due to unclear business models and other challenges.
Startup IPOs: Positive Trends Despite Challenges
While the overall outlook appears promising, the report highlights a less optimistic scenario for about 20 percent of unicorns. Regulatory challenges, plummeting demands, and ambiguous business models are expected to create hurdles for these startups. Market research firm Redseer suggests that these struggling unicorns might explore pivoting to new business models, seeking acquisition by other companies, or ultimately shuttering their operations.
Growth Projections of Listed Startups & IPO-Ready Startups
The report paints a robust future for the Indian startup landscape, projecting the emergence of up to 40 new-age companies or startups ready for listing or IPO by the fiscal year 2028 (FY28). This number is expected to grow further, reaching a potential total of 90 IPO-ready startups by FY28. The report attributes this promising trend to the growing emphasis on profitability and a shift towards more sustainable business models.
What Makes an IPO Successful? Expert Opinion
Rohan Agarwal, Partner at Redseer, highlighted three crucial areas that startups aiming for IPO success should focus on. Firstly, building robust investor relationships and establishing trust, while maintaining a reputation for transparency, is identified as a key factor. Secondly, startups are advised to engage actively with potential investors well in advance of their IPOs to foster positive rapport. Lastly, clear communication of business models and essential metrics is seen as vital to enabling investors to make well-informed decisions about their investments.
Tech IPOs Set to Transform Indian Startup Ecosystem
The report points out several factors that contribute to the immense potential for tech IPOs in India. With a relatively modest tech contribution to public market capitalization at around 1 percent, compared to approximately 25 percent in the USA, the Indian tech space has ample room for substantial value creation. Additionally, India boasts over 100 unicorns and more than 150 'soonicorns,' poised to generate a robust pipeline of startups with IPO potential.
Furthermore, the report draws parallels to the US tech bubble, highlighting that tech IPOs grew threefold in the years following the dot-com bubble. This suggests a similar growth trajectory for Indian tech IPOs in the coming years.
IPO Rediness: Promising Categories for IPO-Ready Companies
Agarwal's insights underscore that Software as a Service (SaaS), Business-to-Consumer (B2C) product companies, and Financial Technology (FinTech) enterprises emerge as the most promising categories for producing IPO-ready startups. These companies exhibit substantial revenues, sustainable growth, robust EBITDA figures, and operate on defensible business models, positioning them as strong contenders for successful IPOs.
With a renewed focus on profitability and strategic planning, the Indian startup ecosystem appears poised for a prosperous path forward, potentially witnessing a surge of around 90 companies entering the IPO arena by the fiscal year 2028.
As Indian startups navigate the challenges of regulatory dynamics and market demands, the landscape continues to evolve, offering a blend of optimism and caution for unicorns aiming to secure their place in the competitive IPO market.