The Great IPO Rush
India's stock market has seen a surge of Initial Public Offerings (IPOs) from new-age technology startups. After a wave of major listings in recent years, the pipeline for 2026 remains robust, with many well-known companies preparing to go public. This
trend reflects the growing maturity of the startup ecosystem, with companies now taking an average of eight years to go from initial funding to an IPO, nearly half the time it took previously. However, unlike traditional companies that typically go public after achieving consistent profitability, many of these tech startups are still reporting losses, creating a new dynamic for investors to navigate.
Valuation: The Story of Future Growth
So, if not profits, what determines the multi-crore valuations of these companies? For startups, valuation is often more art than science, focused on future potential rather than past performance. Investment bankers and early investors look at metrics that tell a story of growth. These include Gross Merchandise Value (GMV), user growth rates, market share, and the total addressable market. The valuation is a bet on the company's ability to dominate its sector in the future, even if it's spending heavily and incurring losses to achieve that growth today. Methods like Discounted Cash Flow (DCF), which projects future earnings, and relative valuation, which compares the company to similar listed peers, are commonly used.
The Profitability Puzzle
The lack of profits in a company asking for public money can be confusing. For years, the mantra in the venture capital world has been 'growth at all costs.' Startups are encouraged to spend aggressively on marketing, technology, and discounts to acquire customers and build a dominant market position quickly. The idea is that once a company achieves scale, it can focus on monetisation and eventually become profitable. This is why many startups list on the stock exchange while still in the red. The regulator, SEBI, allows for this through a special route where at least 75% of the shares must be allocated to Qualified Institutional Buyers (QIBs) like mutual funds and banks. This is a safeguard, as institutional investors are considered better equipped to assess the risks of a loss-making business.
A Shift in Investor Sentiment
The initial euphoria around tech IPOs has matured into a more cautious approach. After seeing the share prices of several high-profile, loss-making startups fall significantly after their listing, investors are no longer focused solely on growth. The market narrative has shifted, with a greater demand for a clear and credible path to profitability. Investors now scrutinise unit economics, cash burn rates, and corporate governance more closely. This shift has forced startups preparing to go public to be more realistic with their valuations and to demonstrate sustainable business models. The funding landscape has also tightened, with investors becoming more selective and prioritising mature companies with stronger financial discipline.
SEBI's Role and Enhanced Disclosures
Recognising the unique nature of these new-age companies, the Securities and Exchange Board of India (SEBI) has stepped in to enhance investor protection. For loss-making companies, SEBI has mandated more stringent disclosure norms. These companies must now provide detailed explanations of how they arrived at their IPO price. They are also required to disclose the prices at which they issued shares to private investors in the 18 months leading up to the IPO, giving public investors a clearer picture of the valuation journey and the gains made by early backers. These measures aim to bring more transparency to the price discovery process for companies where traditional metrics like the Price-to-Earnings (P/E) ratio are not applicable.
