Why Indian Startup IPOs Keep Falling and the Path to Successful Private Market Investments

India’s recent wave of startup IPOs seems to share a common trend – a sharp decline in share prices after listing. The most recent case is Honasa Consumer, the parent company of beauty products brand Mamaearth, witnessing an 11.3 percent drop in the first two days post-listing, leaving retail investors facing losses.

The recurring question is: What are investors consistently overlooking?

In simple terms, the challenge for investors boils down to selecting the right business models and employing appropriate capital structures, avoiding reliance on dubious assumptions for investment returns. The widely embraced ‘X For Y’ model in private market investments, especially in early and growth stages, proves ineffective in the Indian context due to the country’s unique market dynamics. To succeed in India, an India-centric approach is essential. However, the struggles experienced by venture capital-funded startups don’t necessarily reflect the broader market. The primary culprit is often the imposition of ill-suited business models on the Indian market, overlooking the nation’s rapid adoption of mobile technology, digital payments, and cashless transactions. Failure to adapt to these nuances hampers the success of certain investments.

Despite these challenges, India’s top 30,000 unlisted private companies generate a whopping $1 trillion in revenues and $150 billion in EBITDA. The recent stumble of Honasa shares post-IPO underscores the need for investors and businesses to engage with Indian private market companies to genuinely catalyze Indian growth and investments.

The question arises: How significant is India’s private market?

In short, it is massive and rapidly expanding. It’s not just about new businesses; the existing top 30,000 companies in India’s private markets already generate over $100 billion in profits. The potential is enormous, with projections indicating that the market could surpass $10 trillion in the next two decades. The time is ripe for investors to recognize and seize this opportunity.

Unlocking growth and generating returns

New-age Indian companies crave capital, but to build investor confidence, it’s crucial to see the real opportunity in India. This involves identifying sectors growing at 15-20 percent annually and pinpointing individual companies within those sectors achieving even higher growth rates of 30-50 percent. Investors play a pivotal role by supplying the necessary capital to fuel the growth of these companies. The true opportunity lies in partnering with hundreds of these small, high-growth businesses within India’s private markets.