Episode 192 / October 24, 2022

The process and preparation for IPO, with Tracxn founders Neha Singh and Abhishek Goyal

37 min

Episode 192 / October 24, 2022

The process and preparation for IPO, with Tracxn founders Neha Singh and Abhishek Goyal

37 min
Listen on


In 2021, 125 Indian companies raised over $18 Bn through initial public offerings (IPO) in public markets.

Out of $18 Bn, over $7.3 Bn was raised by 11 Indian Tech Startups from Nazara to MapmyIndia.

In today’s episode, we talk with Abhishek Goyal & Neha Singh, Co-founders, Tracxn, which recently went IPO.

But unlike the other major tech startups which went IPO in recent years, at Tracxn, they decided to go IPO at a probably early stage, considering their ARR of $10 Mn.

During the episode, they share there view point on why they chose to do it on an initial ARR rather than going IPO, once they’ve grown big enough and more.

Notes –

00:37 – Intro to ​​Tracxn

01:27 – Feeling of going IPO

02:27 – Preparing for an IPO

05:06 – Splitting the roles within team to be prepared from Day 1

05:41 – Documents which they had to submit to SEBI or any other regulator for the DRHP

06:46 – Trendsetter by going public at $10 Mn ARR

08:44 – Convincing VCs for going IPO-early

11:33 – Mentors from whom they took advice for going public

12:59 – Is it possible to time the market for IPO?

14:58 – Raising an Anchor allocation Pre-IPO

16:17 – Most stressful part of going IPO: Market Uncertainty

18:34 – Rollercoaster set of emotions they went through

22:24 – Moments of giving up during the whole process

24:16 – How to prepare mentally before entering the IPO-process?

24:33 – Zoho Sponsored – Prashant Ganti on Where do founders struggle with Payroll and how can they fix it?

26:01 – IPO-Checklist and learnings

31:26 – What does it requires for tech companies to go public?

35:03 – Playbook where companies can go public and build in long-term

35:54 – Founder aspiration beyond becoming Unicorn


Read the transcript here:

Neha 0:00

If you raise primary, you have to actually expense it out. And like in the private market, you cannot just keep it over there.

Abhishek 0:05

And my parents’ ambition, people said that they own, they bought a Reliance stock and that helped them marry their children or send their kids to school. So eventually, one day 20 years down the road if I meet shareholders like that, that will be a dream come true. And that will be the true purpose of going public at this stage.

Neha 0:20

It’s not recommended that you put the pool without actually talking about, identifying the target and then doing that so they don’t typically like a blind pool where you can do anything with it without specifying the target.

Siddhartha 0:37

Hi everyone, welcome to the 100X Entrepreneur podcast. This is a very, very special episode. I have the building behind me called the National Stock Exchange. It’s every entrepreneur’s dream to become a public company and list on the national stock exchange or Bombay Stock Exchange. Today I have with me entrepreneurs who have fulfilled this dream for their team, their investor and themselves. So welcome Abhishek and Neha, founders of Tracxn on the podcast, Tracxn is one of the world’s top five market intelligence platform on private companies, Tracxn is used by more than 800 customers in more than 50 countries and us, today Tracxn has more than 67 crores in annual revenue currently valued in the public markets around 800 to 900, crores profitable also in this quarter. And as we speak today, they are listed on the National Stock Exchange and Bombay stock exchange. So Abhishek and Neha, how’s this feeling of going IPO?

Neha 1:30

Thanks Siddhartha, firstly, for having us. It’s very exciting, I think when we started the company, probably nine years back, this was one of the goals that you will actually become a listed company in some journey, some years to come. But we had not imagined that, all this culminated in the last I would say one and a half years. And we started working towards the end of 2020, when we started the process of thinking that let’s start the listing process. And then we finally submitted our DRHP in August last year, and then got the approval at the end of last year. So I think it’s been a fairly exciting journey. And we’re really excited about continuing this journey as a listed company for the decades to come now.

Siddhartha 2:09

Abhishek, how are you feeling now? Any chills in your stomach as you go public? And now the fate of the company, you have given a little bit in public sand?

Abhishek 2:17

Well, it’s a very surreal feeling. It’s something I really wished for. And this was what we imagined when you started the company, I’m really happy that we are finally here. And it’s a very big moment for me

Siddhartha 2:26

And take us through the journey of how you prepare, first of all internally, yourself, what are the discussions between the founders, and then how you talk to the team and investors that taking public is the right path to go. And then what are the preparations needed to do it.

Neha 2:40

funnily, we had actually thought about that listing is a good option when we were starting the company and that is one of the reasons why we also have the HQ of the company in India, though we are a global platform, so 70% of our revenue still International, but we did realize that our base will always be India, like our team currently is entirely based out of India, and then we will probably hit the listed market at some point in time in the journey of the company, probably when we started we actually took that decision of having the HQ in India and building the whole team and everything from here, like Make in India though it’s a global customer base. And the end of 2020 is when we actually started to work on the listing process seriously, because the markets look sort of very conducive.

So December 2020, is when we actually thought about it internally, we decided let’s start the process. And by the time you finalize you start working, like in the listing process, you have to work with some set of intermediaries, especially a banker, then the legal counsels, etc. So that we finalized by March of 2021. And then it took us about three to four months to do the DRHP filing, you have to do the DRHP filing, you move to NDS Accounting format, etc. So there are some of the things which are required on that front. So August is when we filed the DRHP with SEBI, and it took us three months to get the approval.

So a little in the second half of November is when we actually got the approval, that approval is valid for a year. So essentially, based on the market conditions, you can like hit the market any point in time in the next 12 months from the approval date, I think the markets basically, in the beginning of 2022, obviously given the rate hike, etc, they were a little bit in the red, and in the middle, when we saw good opportunity, we started to sort of prepare back to hit the market. So we updated with the June financials and then, hit the market now and, while at so I think everything sort of culminated to finally closing the whole issue and then us hitting the markets.

Abhishek 4:34

One of the things that people need to do is to be mindful about going public from very early on. So you have to make sure that you are not cutting any corners on any compliances because otherwise before the listing process, you will end up spending a lot more time. So in our case the CFO was among the first 10 employees to join. We had four big employees from the last seven years. So all of these made sure that we were mindful of doing everything right from very early on because retrospectively it takes a lot longer to prepare if you are not being mindful from very early on, so because of that context, I think it took us a lot less to prepare for our actual listing process eventually.

Siddhartha 5:06

And how did you split the role among yourself, like between each other and between the key team members that he will do this, he will do that, to be prepared for the IPO?

Neha 5:14

So I think we did a very interesting thing. I think the finance IR team was probably working throughout the whole process, the other company was ASIS. So thankfully, we didn’t have to change operations, because we had anyway built a CLI. From day one, we didn’t have to change that. So that team actually sort of continued to work. And then the IR and the finance team, obviously, we sort of augmented that, because then there is a very intense process, you have to do all the things.

Siddhartha 5:41

If you can recall, like how many documents you had to submit to SEBI, or any other regulator for getting the DRHP filing.

Neha 5:48

So that is a very interesting process. So the filing that you have to do with SEBI is just one document, which is there. But there’s a lot of things which go behind it. Thankfully, we have been working with the big four like PwC, as our auditor for the last seven years or so. There was this continuity, which was there, and then you have the change in Accounting format. So that was a minor thing that we sort of changed. Second thing is that for instance, for a lot of our shareholders, we were probably the first company in their portfolio to be getting listed.

So a lot of them in, for instance, your shares required to be in demand format, some of the investors also had to open the mat accounts, because we were the first company in the portfolio to be hitting the listed space. So that was interesting to a lot of other things that goes behind the scenes, like you have to document your board, we got in really experienced people on our board, in addition to the investor nominee, which had already been on our board for the last five years, we also sort of augmented that. So all these things probably take a few months there before you do the filing.

Siddhartha 6:45

Abhishek, you are starting a new trend for startups, going IPO at 10 million ARR, whereas the market expects you to go IPO at 100-200 million ARR. And thereby you’re also giving the public an option to create wealth along with you as you grow to 20 million or 30 mil ARR and the valuation of the company also increases for the retail investors, does it go against the private investors norm, the VCs that they are expecting a billion dollar outcome from every other companies.

Abhishek 7:14

So first I think, if you look at the Indian market, a lot of IPOs have been around 500 to 1000 Crore float, which is a fraction of your company, it will be anywhere between 25 to 40% of your company. So that is a sweet spot for an early IPO in India. And as you grow larger, I think if your float is more than let’s say a billion dollar, it gets very hard for the Indian market to absorb it in today’s context. So if you look at the public market, it’s a much older ecosystem in India and the venture ecosystem is relatively new. And I think a sweet spot of entering the market is between $200-500 million valuation. That is a sweet spot where the Indian market can attract a company. So that is how entrepreneurs can potentially plan for it. And these two ecosystems are slightly different. And eventually we will learn as a country, what is the sweet spot at which a company should transition from private to public.

And in our case, there is always an aspiration to go public. And when we thought there was an opportunity, we got interested. So we started working towards that. But I think in my opinion, we are still in the early days of learning when startups or private ecosystems should transition. And I think over time as we go forward we will sort of find more sweet spots as to what is the way to end. But what I’m really excited about as we’re entering a stage where there’s a lot of growth left for the next two to three decades. One of my aspirations is that like in my parents’ generation, people said that they bought a Reliance stock and that they help them marry their children or send their kids to school. So eventually, one day 20 years down the road if I shareholders like that, that will be a dream come true. And that could be the true purpose of going public at this stage.

Siddhartha 08:40

And that will be like the Dhirubhai Ambani moment for you guys. And was it difficult convincing your VCs that hey, we want to go IPO right now. And not once we hit more milestones in a revenue journey or customer journeys.

Neha 8:51

So in terms of the investors, I think we’ve worked with the investors from early on and we arranged our first fundraise nine years back, the first institution seven years back, so there was already a lot of history that was there. So I think that was the easier part, on the other hand, when you say when is a good time to actually hit the markets and other things in addition to the revenue and other things, which I realized that the Indian public markets already like is the profitability. So they want you to hit the market when you have a clear path to profitability, or you already become profitable.

And that is also one of the reasons why when we actually started the process is when we had actually turned cash flow positive. So we started the preparation of there because at that time, it was sort of fairly clear to us from all the people that we had spoken to is that Indian Public Market sort of likes profitable stories, like companies with good bottom line and in our case, we had actually turned cash flow positive much earlier than bottom line positive because we do cash collection upfront we have a prepaid billing, etc. So even last year, if you want to see, that was sort of cash flow positive.

So I think in our thing, what I realized is a good time to sort of hit and what also the investors sort of understand well is basically when you have a good part to become sort of having good pat when you have good visibility on that that is a good time to also start preparing for the listing process, especially in the Indian markets because that is what a lot of investors have typically used to seeing and like in companies.

Nansi 10:18

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Neha 10:49

Just to add, I think in our case, two things really worked well, which sort of resonated well with investors. I think one was basically the nonlinear EBITDA expansion. So in our case, because of the fact that you have to initially do a lot of upfront investment in building the whole data platform, etc. And then you can keep reaping the benefits of that once you build the data for different countries. So that was one interesting aspect in our business that the EBITDA has been expanding in a very nonlinear fashion, if you look at it in the last three years, and the other thing that people also like is basically you’re increasing free cash flow. So your business generates free cash flow, and it has shown an increasing trajectory. So I would say that is also , sort of good things to sort of keep in mind when you’re thinking about what is a good time to hit the public market.

Siddhartha 11:33

And I would like to ask you, who were the mentors or people who took advice from to go IPO, remembering, once Abhishek and I had a discussion connecting with Nitish Mittersain from Nazara and who the other people that helped you and what are the help required externally, say it can be validation, it can be processes to get the path.

Neha 11:52

If you look at a private market journey, we are fortunate to have had sort of backing from some of the investors who have seen the public markets. So for instance,in the US we had an angel investor who had been on the board of a lot of companies who had listed in us so obviously the US is a much deeper market, a lot of companies have seen that journey. So that was a very good learning experience. Here obviously, we are fortunate to have had the backing of Mr. Nandan Nilekani and also seen the whole sort of journey. So I think advice from those people is very handy seeing firsthand of what they have seen on the private to public journey and seeing those years in public life and how as a company, what maturity you need to reach to be able to sort of run the good publicly listed company that was very helpful.

In addition to that, we obviously took advice from a lot of people who have seen in the venture ecosystem, actually there are only a limited set of companies like venture backed companies who have IPO, we also obviously took advice from a lot of people who have seen this journey in India a good part is that that’s a increasing set. So, probably earlier there were less than, like four or five people you could probably speak to, to get this experience firsthand. And the good part is that, , that’s probably increasing.

Siddhartha 12:59

And any set of people who said, hey, this is not the right time to IPO because you started preparation in the COVID market, when there were two years of complete uncertainty. And as you went and prepared in 2022 to go public this year, the global markets melted down. And today in the US a good SaaS company that has 200 million annual revenues is trading at two 400 million of valuation. So did it deter you there? Were there any fears in this process that might be the trigger to market it?

Neha 13:29

I think in terms of the market timing, you can perhaps time it to some extent, but not to a lot of extent, because this process itself is, at least even if you do it very smoothly, it still takes about six months from the time you start the process to you hitting the market. So you can perhaps take a bet, like your business is ready and direction wise, you are getting sort of good traction, , when you’re speaking to investors, you’re getting good traction initially, initially you spent a lot of time in meeting the institutional investors, obviously, and you get sort of good feedback from there.

So I think once these two things are there, that your business is ready, and then you’re also getting good feedback from investors, that is probably the time that you can plan for otherwise, where the markets will be, at the end, it’s a little difficult to time because, it’s anyone’s guess how the market will be probably six months from now. So the process itself is at least two quarters or so.

Siddhartha 14:23

And did you think that if COVID wouldn’t have happened on the market wouldn’t have melted, you would have gone IPO sooner?

Neha 14:29

Looking back I think we were able to do it at a fairly good pace. So I was glad that everything sort of worked out, like the market environment, etc. Also worked out. I think, now, obviously, like, if you compare it to last year, markets are fairly lower in that sense, that’s there, but I think there’s still some sort of demand for, I would say, good companies or good assets, which is still there. So I think, looking back, I think we’re fairly glad at the pace at which we were able to sort of execute from the time that we first started thinking.

Siddhartha 14:57

Abhishek you raised 135 crores from pre-IPO round, was it tough? Was it easy? How was it?

Abhishek 15:03

I think this was as a part of the entire IPO, you have to close an anchor allocation before opening the issue. So it was part of that itself. And this is the main book that you have to close before you actually launch the public issue. And so when you start the process, I think once you find DRHP, you start meeting investors, and part of the money will come under anchor. And we were fortunate to get very good, interesting mutual funds like usual, like Kotek, ICICI came, Nippon came. And on the other side of Y2K Funds, Abacus came. And this was the period where you also bankers worked with investors to do price discovery. And you typically want long term investors who understand your model really well, and also help work with the banker to set up a good price.

And I think this was a long process, I think I’m happy that we ended up spending a lot of time with them, it gives you an opportunity to actually explain to them the long term vision of the company. So I think this is the most rigorous part of the IPO, you end up meeting more than 50 investors and eventually hope that between five to seven good investors say come and work with you. And if you were to ask me before starting the roadshow, who are your top tier names, some of them would clearly be in that list. And we were very happy that we got some of the blue chip names in that ecosystem to come and work with us.

Siddhartha 16:16

Let me ask you both, which was the most stressful part of the entire IPO process?

Neha 16:21

I think the most stressful part was the market uncertainty. So I started probably falling macro more than I would have ever done in my life. Like because the business is not so impacted by the macro. So you keep running the business as is looking at some of the customer segments that you work with. But in this market, I think the macro sort of impacts so much, because overall the investor has exposure to this whole different asset in this class. So I think that was probably one of the key things of just falling, what was the when was the rate going to be there? And what was that going to be there, which had never followed earlier while dicing the business but now.

Abhishek 16:55

And you feel so helpless, on the business, you can work on and do something on the macro front, there’s only so much you can do. And while we were about to open the issue in the last few weeks, there was a lot of conversation on war getting escalated, then we were really on our toes, like constantly checking that something hasn’t escalated, and our anchor book was closed. And then because of this whole war conversation, the market started to fall. So that was I think, the most nervous period that everything is done now. And I sincerely hope it’s a big human catastrophe. But we were so nervous about it. Because of that the last two weeks have been the most nervous part of the entire process I think.

Siddhartha 17:28

How many sleepless nights?

Abhishek 17:30

That thing is forever. I think we started thinking about December 2020. So I think typically, when we start the process, people, a lot of people advise us that look, it’s a three year process, go in with that mindset, if you lose the steam in between, there’s no point in working on it. And a lot of it will set the first 12 to 18 months to just be internal readiness. So in our case, when we started working, we realized that within two to three months that internal readiness is very high. So when we started working with the bankers, they did the initial DD, I think everything looked like it was in place. So then we got really accelerated, but because of macro, it became slower in between, but I think that was the one of the big things that we sort of went through.

Neha 18:05

And I would say, I think there’s the other sleepless nights is also because earlier, you had investors, which are probably people that you have worked with, or people that you’ve known previously, right now there are a lot more investors who are sort of people like retail investors, so there’s a lot more responsibility, I would say, in that probably that is one thing that gives us sort of high sense of responsibility that you have to have in across not just yourself, but across the company.

Siddhartha 18:34

So Abhishek and Neha, can you share the feelings that you went through? What is the rollercoaster of emotions? Was it fear, joy, what are these, and you guys will also become like very young parents, your kid is one year old. So it’s like, the first is graduating, and now you have your second kid.

Neha 18:47

It’s a great journey to have gone through the whole thing. One is you keep thinking as an aspiration, that you as a company, I would say, see, if you, you as a company, if you want to continue to build it for decades, if you feel that the market is very deep, then obviously getting listed as one of the top options that you have, if you’re building a company, and, to finally, from the thought of getting listed to having closed the whole loop obviously, that’s a very exciting journey, I would say.

And I realize that there are so many stakeholders that work in this whole process, being from bankers, to legal counsels, to both Indian international etc, such a huge amount of work that goes behind the scenes to make that possible. And to finally move to the other line, I think that is the very exciting thing, everyone’s sort of efforts sort of paying off culminating into the offer being closed and you’re getting listed. So I think that was the whole thing, which was interesting in the last one year, that so many things had to sort of work in tandem for you to sort of get listed.

Abhishek 19:47

And it’s a lot of work. So I think, for 18 months, we’re constantly running very hard and we’re always going to moments when you feel that nothing is happening. I don’t know if it’ll come out or not come out and you keep hitting roadblocks but I think there was a lot of progress being done, I think, at least three to four moments when we thought that we were completely stuck. And we’re going to miss the cycle. And we’ll have to refile again. But thankfully, in the last few months market condition improved, and we were able to come out, but it’s a lot of work with a lot of emotional highs and lows. And there will be at least three to four moments when you almost feel that we are stuck at some place, and nothing is happening now. And these can be a lot of technical issues. So sometimes it doesn’t network. So all investors get a clause of buyback. And technically, from an auditor’s perspective, here buyback clause, the company’s net worth is like a lot of negative corrodes because whatever is the network company supposed to buy back.

So whatever value generated directly goes into a negative network and, on March 31 of that year, on the previous year, which is your filing, that clause has to be removed. And we discovered that clause on like, last week of March, thankfully, we discovered if we had got into Approval, then you would have lost one entire year. So these are very, very small technical issues that you run into when you’re doing it for the first time. And then thankfully, like every time, something worked out, and you’re able to cross that and not lose time.

So every time you run into such a roadblock, you basically lose a quarter or a year, typically so and when you discover it for the first time, and if you don’t come across in the next three, four days, and if you don’t solve it, then you understand the entire cycle. So emotionally, it is a very turbulent experience. But I think eventually, it’s all about outcomes. So if you finally get the outcome, everything is sort of worth it. And but if you keep losing time, then obviously it’s a much more draining exercise.

Neha 21:25

I think our team had a good time, like they had probably had a lot more nights out, I would say in this whole process. Like to just give an example, when we had filed the DRHP it was probably I think, like 4am or 5am time. So that means that our entire team, all the legal counsels, bankers, everyone was up the whole night doing those small sort of iterations, so that everything is in place for us to be able to do the filing. And similarly for a lot of other filings that were also done.

So typically the target is, before, like 12am, but it typically sort of goes because you need a lot more other dependencies that are there, for instance, simple things, you work with an auditor, and the auditor also has to coordinate with their US counterpart, US team. So they have to get some documents from there. So there are so many moving parts, and a lot of time of filing could happen, like, early morning, that means everyone would have walked in across the night. So that time I think our team probably had a lot more, I would say night outs in this whole process.

Siddhartha 22:24

Was it any moment that you would like to give up, like you won’t be able to do it anymore?

Abhishek 22:27

Oh, yes, absolutely. This is a network for that thing. I think I remember 29th March or something. It was a weekend. And then we were walking and saying this is stuck. How do you resolve that? And then suddenly, we realized that oh, we can actually request investors to wave off some of these clauses. And that should be like in one day, everybody turned around and without pushing us back. Why are you asking us to give us some of these exits, which are very critical to investors. And so many times some of these things happen. Sometimes in regulatory approvals, you’re stuck in something, nothing is moving. And you almost feel that it is cyclic because everything is on a tight timeline that approvals for getting expired were expiring on number 12.

So for whatever market condition, even if you lose two week, now you have to just redo the entire thing, which is very long, draining six to nine,

Siddhartha 23: 13

we’re just three weeks away from november 12.

Neha 23:19

So it’s always a hit and a miss I would say.

Abhishek 23:21

I think even one week before the anchor book was filed, we actually had a discussion that maybe we’ll be missing the cycle. I think we were going to the office and we were like this constant phone calls going on between different stakeholders. And it was almost like we practically mentally accepted that this cycle won’t happen now. So that moment kept happening, I think. But there’s light at the end of the tunnel, somehow things always worked out, you were always able to find one solution to it and then kept moving forward.

But I think a lot of it was also that we had that expectation. A lot of people have told us that you will hit these roadblocks. It will be a long, tiring process. Don’t enter it until you’re really sure you want to go through it because your conviction will get tested again and again and again. And in some cases, we were mentally seasoned to expect many more challenges than these. We had practically budgeted three years for the cycle to get over. We had practically accepted a lot more hardship. So because of that expectation reset, I think it felt as if it was less than what you mentally prepared for and that turned out to be okay.

Siddhartha 24:15

But how do you mentally prepare for this? Because whatever mental preparation you do, nothing comes when you hit the road.

Abhishek 24:22

Yeah, I think it was always that we knew that this is going to be tough, and this is going to be turbulent. And so I think you signed up for it so you can’t complain.

Siddhartha 24:32

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Siddhartha 25:52

Thank you, Prashant. Dear listeners, you will find more about Robo payroll in the show notes. Now, let’s further continue with the podcast.

You mentioned about the buyback thing, how many items were there in this IPO checklist that you had to fulfill?

Abhishek 26:06

It was not like a well defined checklist, we kept going through it and kept discovering because a lot of these sort of ecosystem players, they’ve also not seen, like venture backed companies going public. So they are also discovering nuances of a lot of foreign investors, a lot of people who have different consoles, so these setups are also new for them.

So as an ecosystem, we are learning how to take some of these companies public. So I think these are nuanced points, which sort of have not they have not seen in a lot of cases earlier. So that is, I think, part of the learning curve. And even for regulators, these are new sets of companies or promoter holding is not 100%. So a lot of people are used to seeing promoters holding 100% of the company. Actually there are fewer companies that promoted holder.

Siddhartha 26:43

A venture backed company can never be 100%, in most of the cases till you reach IPO, there’s only 50%.

Abhishek 26:49

A lot of people even asked us, how come you only have 50%? So I think this is a new thing that a lot of people are discovering how to sort of deal with some of them. And it’s not as if a well defined checklist, you keep discovering things on the go. And then sometimes those things are difficult to swallow. And that can sort of hamper your time as well as your enthusiasm.

Sidhhartha 27:09

And you structured this IPO mostly as an offer for secondary sale? You didn’t take any money for the growth of the company.

Neha 27:16

No, that’s a very interesting point. Actually, not a lot of people actually know this fact. But if you raise primary in the IPO, then you have to use it in the next one to two years and that is basically monitored also. So you have to give the use of proceeds initially, you have to use it for those and unlike financing the private market, you cannot just keep it for unallocated items initially, and then use it , at some point in time, you have to actually expense it in the next one to two years. And in our case, because we were cash flow positive, and we were bottom line positive, though we have been fairly aggressive in the growth of the business, all our expansion has actually been, we’re able to sort of finance it from the cash that the company generates. And we still haven’t used the last fundraise that we had done in the private markets, also that still has cash and bank which is there.

So that is an interesting nuance, which not a lot of people know that if you raise primary, you have to actually expense it out. And like in the private market, you cannot just keep it over there. And the second thing is that if you’re a profitable company, and you don’t have a lot of CapEx requirements, because you don’t have to set up large factories. It’s a fairly asset light model, I would say. So there aren’t a lot of avenues where you can actually deploy it. Like if you want to buy an office building or something like that, that’s not something that we investors really like you to sort of lock in your capital over there. But that was an interesting nuance that we actually realized when we started working on the process, because that was very different from how you do a fundraising private market versus you have to do it in the IPO market.

Abhishek 28:41

So we started with saying 100% primary will do and then we said that we can be deployed. So one of the ideas was that we can buy office space. So even for that, I think you have to finalize the details, you have to produce all the documents as a part of DRHP. And then you have to buy. You can’t just say I will buy a truckload of 50 growth of office buildings, and I will find the building later. That’s not how it works. So we realized that that system was very watertight. And we can put additional net growth into the business because business has been self fulfilling. And these are expansion like EBITDA has been expanding, free cash flow has been increasing in that business, you can’t commit to putting another 100 crore to that. So I think then 100% offers become the main option. And then also it sort of is also testimony that companies generate cash. I think one of the biggest questions that we got during the process was profitability of tech companies and startups in general.

So people were, when they saw 100% offers that also testimony, that the company doesn’t need a lot of cash or he will not do the IPO and then go and raise 200 million to fuel the growth. So that also builds some comfort that whatever we are saying that it’s expanding a bit, increasing free cash flow stories or have that added to a proof for that rather than just a negative thing. And our team headcount, it has increased a lot. In the last one year our team grew by 150 people.

Siddhartha 29:52

So what is the team headcount now?

Abhishek 29:53

So today we are 800 people and they saw that despite adding 150 people on a base of 650 we were continuing to show Ambit expansion on freaks flunkies. So that office was supportive of our profitability story. And that was actually one of the reasons people didn’t like the story.

Neha 30:07

The other thing, what we realized is regulators also don’t like is that even if, for instance, in our in our plan, you’ve given that inorganic is something that we will probably do in future because in general financial data companies you see are fairly aggressive on in organic expansion, it’s not recommended that you put a pool without actually talking about the identifying the target and then doing that. So they don’t typically like a blind pool where you can do anything with it without specifying the target.

Ideally, if you have sort of boiled down to a particular target, you give that and then , you give the details in the filing, and then you can sort of raise money. So that is one of the things that people also don’t realize that people don’t like the drone, like, like a pool of capital, which you can use it in variety of manners, they ideally would like that, if you’re going to use it in some manner, you have to give the use of proceeds. And that is why I think the ofs sort of worked well, because of the fact that like the businesses as Abhishek said.

Abhishek 30:59

Advisors also said that preferred route is and at some stage after one or two years, if you do want to do an organic, then it’s very easy to do Qi at that time you identify target, you produce all the diligence documents, and then within a week or two advisors will be able to get all the required capital for that. So I think because of this whole dynamic of primary and secondary, I think it made sense for us to do 100% OFS and sort of build a comfort that it’s a cash generating company, and that is what is the need of the area for investors also today.

Siddhartha 31:25

So Abhishek, now you have become a middle touch for companies going public, you were the first investor in delivery, which went public, now your own company is going public. I see entrepreneurs lining up at our door, we just put a token money in my company before you go public.

Abhishek 31:39

No, I think there have been a lot of people who have reached out to us over time. What does it take? Because this is not something a lot of people told us when we were starting it does not have that playbook. It is not obvious that what it takes for some of these tech companies will require a lot of initial upfront investment to actually go public. And we had the fortune of having one or two shareholders in us who had seen this story play out in their markets. And they shared what they thought was the right thing. And I clearly remember in the first few months, like there was a conversation with me saying that at some stage, you have to decide, are you building it for m&a or are you building it for an IPO?

Because if you’re building it for an IPO, you are to make sure that after one or two rounds, you don’t have days at the peak of the boom cycle at a price that your IPO is pushed by five years. So if you end up raising in 2021, at a very high price, the public market anyways gives lower valuation than the private market and in the wake of the private market, if you raise at the premium valuation, you can’t IPO for five years.

Siddhartha 32:30

You had an option to raise in the 2021 market.

Abhishek 32:33

Last year was very crazy. Most people could have gone out, we didn’t go out because we knew we wanted to do a five year issue. But you could have gone out and gotten a very high valuation in the last year, but then you push it out for five years and buy them another booms, it will come so a lot of people fall into the trap of raising at the peak of the cycle and getting validation to a point where public markets can never accept them. So I think in our journey, also, after first one or two rounds, we always made sure that we’re not raising too much we are building methodically in a lot of our conversations at least once or twice a week would always say internally that build as if you are building a public company, don’t do something which you think is not open for scrutiny, you are not open to debate for on merit.

Because eventually we’ll go public. And at that stage, if you have to read to this vibe, do something like which can have to be replaced later. So I think that mindset really helped, I’m hoping that we will help discover part of the playbook that people can potentially fall in future to go public.

Neha 33:20

I think the other thing I think Indian markets have also matured a lot is if you look at the number of interesting stats that if you look at the tech company’s market cap, to the total market cap of Indian listed entities, it’s only about 1.7%, that is 34% in the US, for instance. So earlier, people used to say that, if you look at the Indian equity space, there are hardly any tech companies if you look at ours compared to markets like the US or China, but I think that is increasing in a good direction. So people have started to understand the debt models, people have started to understand these kinds of companies.

And now it is expected that, in the next five years, it will increase from like 1.7% to like 15%. So that is expected to sort of increase. So that is also a good directional thing from the markets that earlier, people used to say that, these markets have not seen a lot of companies. So there aren’t a lot of peers, and there aren’t a lot of other companies to look at to understand. But that is changing now.

Abhishek 34:13

Let’s see, I really hope that a lot of companies now in the future take this path of building more meticulously and building for longer. If you’re going to go public, everything has to be ready. So it’s not about just hitting targets and milestones. It’s also about how you achieve these. What processes do you set up? So it’s a mindset shift. And I’m hoping that part of the playbook will get inspired by us and I’m sure many more companies will go public and set up a train. But I think this will be the evolution of a new business where we will see a lot of companies getting started.

We become private for 10 to 15 years and then build another 20 or 30 years in public and that potentially creates a lot of iconic companies out of India. We are not building companies to sell to others but we are building companies that will buy other companies and become very large. As a country. You want to build companies like Apple or Cisco. We have to have Salesforce stop selling our companies. We have to start building companies which can set up an AI Current gathering everything around themselves other than just selling and moving on.

Siddhartha 35:03

And also, I think it coincides with a lot of growth stage funding getting stopped from the US. If a US investor has to put 500 million, he wouldn’t put 500 million now today in a private company in India valued at 5 billion, he would rather buy a public business in the US.

Abhishek 35:21

But I think it’s a matter of time. I think tournament slowdown in my opinion, after 12 months in 24, you will still see those crazy rounds happening. So it’s I think, so far as a founder, most followers in India have only seen this one and grown kind of playbook. Now people will see this as another kind of playbook where companies can go public and eventually build it out over the long term. I think it’s another playbook. I think. And I’m hoping that over time founders will have to make that choice: do I raise money at the peak of cycle and the most premium valuation possible, and then push my IPO for another five years or do I sort of hunker down, go towards profitability and start building as a profitable company.

Siddhartha 35:54

Founders till now, unicorn was the highest level of aspiration absolute that they wanted to attain. I think that needs a little bit of calibration?

Abhishek 36:04

Absolutely, I think it’s just a different way of building. I think people will, as you see more examples, it will happen. If you look at it around us among our shareholders, I think when we start thinking about it, we also realize that a lot of people around us are also thinking and then we sort of inspire or learn from each other a lot. And over time, I think it is just people do what they see from others, and they see others doing. So I think this will emerge, in my opinion, as a big playbook. And then typically, my sense is that investors will not sell at IPO, they will continue to hold till the end of frontline cycles and then sell accordingly.

You are also seeing in us that Sequoia is now moving away from private only to also evergreen and sort of holding public utilities. So I think that the demarcation of only being private and public will sort of start to merge and a lot of will do a lot more crossovers in future. So I think I see it is also a natural evolution of how these asset classes interact with each other globally, not just in India also.

Siddhartha 36:54

Thank you so much Abhishek and Neha, I think you guys have to dish out the entire playbook of how to take a company public in India.

Neha 37:00

Thanks. Thanks a lot for that. It was awesome to speak. Glad to be here.

Abhishek 37:05

Thanks Siddhartha.

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