Startup IPOs: Wealth Creation or Just an Exit Strategy for Founders & VCs?

Startup IPOs: Wealth Creation or Just an Exit Strategy for Founders & VCs?

India has witnessed a startup IPO boom over the past three years—23 companies went public, promising innovation, disruption, and wealth creation.

But have they truly delivered for investors? Let’s break it down.

Reality Check: Winners vs. Losers

?? Winners: Only 7 out of 23 IPOs are trading above their listing price, with an average return of +69%. Compare that to the midcap index, which has gained +78% in the same period.

?? Losers: A whopping 16 startups have lost value, averaging -35% returns. Meanwhile, RIL, India’s largest large-cap stock, has delivered +14% in the same timeframe.

?? Biggest Winner? Zaggle (+163%) ? Biggest Loser? IdeaForge (-67%)

What’s Behind the Heavy Losses?

?? Paytm (-60%): Three months post-IPO, the RBI barred Paytm from onboarding new customers due to KYC and compliance issues. While insiders like Vijay Shekhar Sharma had stock incentives tied to valuation milestones, regulatory setbacks dented investor confidence.

?? Nykaa (-50%): Backed by heavyweights like KKR, Nykaa listed at a $7B valuation (6X GMV). But despite the hype, its annual profit has never surpassed ?61 Cr (FY21 levels)—a classic case of inflated valuations vs. real fundamentals.

?? Ola Electric (-35%): Mounting customer complaints, leadership exits (CMO & CTO quit), and declining market share—Ola Electric’s IPO hype is clashing with operational chaos. Scaling fast without a solid foundation rarely ends well.

Why Are Indian Startup IPOs Struggling?

?? Valuation Discipline Missing – Startups are listing at sky-high revenue or GMV multiples, with no clear path to profitability. Eventually, markets correct overpricing.

?? Regulatory Uncertainty – India’s regulatory framework is evolving, especially in fintech, gig work, and emerging tech, adding volatility.

?? Investor Sentiment – Indian retail investors have low tolerance for high-risk, loss-making businesses. A little speculation → A lot of price movement.

What Needs to Change?

? Founders’ Mindset – Instead of asking, "Can we IPO?", founders should ask, "Should we IPO?" A sustainable business with strong governance is far better than a flashy listing.

?? Stronger Governance – Founders need to invest in legal counsel, a solid Chief of Staff, and an independent board that calls out red flags before they become crises.

?? Tighter IPO Oversight – SEBI and investment banks must enforce stricter IPO pricing and disclosure standards to protect retail investors from overhyped listings.

Investor Dilemma: IPO or Wait?

?? Should you invest in an IPO or wait for the hype to settle?

Option 1: Invest in IPOs

• If you believe in the company’s fundamentals, growth story, and governance, investing early could generate great returns.
• But beware of hype-driven valuations—many IPOs list at premium prices, only to correct later.

Option 2: Wait for a Year

• Many IPOs see a price correction once the initial excitement fades.
• By waiting, you get to analyze real financial performance, post-IPO management decisions, and market sentiment.
• Historically, buying after a year often provides a better risk-reward ratio for most retail investors.

?? Verdict? If you're risk-averse, waiting a year could be a safer strategy—let the dust settle and invest with clarity.

Final Thought: Hype Fades, Fundamentals Last

An IPO isn’t just an exit—it’s a public commitment to accountability and long-term sustainability. The harsh reality? Hype fades, but solid fundamentals endure.

The question remains: Will future startup IPOs create real wealth or just liquidity for insiders? Time will tell. ??