Zomato IPO was a watershed for the Indian startups. It showed an investor demand exists for loss-making companies with solid business fundamentals and a strong growth path. Zomato IPO gave liquidity to the late-stage venture capital investors in India. Startup equity is illiquid because it is not traded on public markets.
The angel investors get their returns once the startup raises Series A/B with early-stage VCs. These early-stage VCs make their money once the bigger VCs like Tiger Global and Softbank buy their shares.
But how do these big VCs sell their shares? IPO is the most common route. Thus, Zomato IPO was a validation for the late-stage VCs.
But Zomato is not alone.
Dozens of startups have come up with their IPOs in 2021. Most of the big IPOs are either in Nasdaq or NYSE because American investors understand startups better than most.
But how have these companies performed post IPO?
Nine big startups came up with IPOs in the second quarter of 2021. All are technology companies except Oatley (Oat milk maker) and Didi (Ride haling company like Uber).
Although it's still early days, the share prices of some of these startups have risen while that of others have crashed.
Since it is less than 4 months since the listing, it is unlikely that something fundamental has changed to justify this big movement in prices.
Thus, a high jump or a decline in share price means one of two things.
1. The IPOs were either underpriced or overpriced, and the markets have corrected this pricing mistake.
2. A company's revenue or profit numbers have no bearing on the share price. It's pure demand and supply at play. Investors, for some reason, prefer some companies over others.
I observed one interesting trend in almost all these IPOs including Zomato. There was a big difference between the IPO price and the opening price. The prices increased at the time of listing and then came down from this initial high once the euphoria was over.
The only way I can explain this is many investors felt they missed out on a golden opportunity. These must have been the ones who didn't get the IPO allocation. They bought the shares from the original investors after listing.
And we don't know when this second set of investors will make money.