Paytm debacle more about pricing, won't impact start-up IPOs: PE/VC firms

They say Paytm's poor show is a reflection of just one company that didn't do well, many other IPOs like that of Zomato have been strong

The Paytm listing fiasco will not impact the forthcoming initial public offers of other start-ups and new generation companies which are category leaders and have unique business models, say private equity heads, bankers and venture capitalists.

Several Indian start-ups including Delhivery and Mobikwik are IPO-bound and are expected to raise funds from anchor investors and retail.  

One97 Communications, popularly known as Paytm, lost mearly 40 per cent of investor wealth in two trading days since listing. On Tuesday, the stock recovered by 10 per cent to close at Rs 1,495 a share.

“Paytm’s IPO debacle has more to do with the pricing of the IPO than the opportunity for startups to build a very large business. Also, the price to value equation keeps on changing in the minds of investors and they have traded only a few days. With the large market opportunity in India and strong performance of many tech companies, we don’t see this one event affecting valuations meaningfully," said Anand Prasanna, Managing Partner, Iron Pillar, a top venture capital firm.

Bankers said it will be wrong to colour all the IPOs with the same brush after what happened to Paytm. “The ecosystem in India is quite good and there will be demand for shares of well-run companies and for category leaders. Oversubscription of the IPOs of two recent companies showed that there is a huge demand for shares and investors' appetite is good,” said Gopal Agrawal, MD & Head, Investment Banking, Edelweiss Financial Services.

An executive at an investment firm that has backed some of the biggest unicorns in India said that Paytm's IPO debacle is not going to have any impact on the future IPOs of other start-ups, as Paytm's poor show is a reflection of just one company which didn't do well, but rest of the IPOs like that of Zomato and others have been really strong.

"Paytm's IPO debacle is more to do with the company and its valuation expectations. It would not have any impact on the IPO of other startups," said the investor who wished to remain anonymous. "However, Paytm's IPO debacle would lead to some correction in the valuation of companies in the public markets."

Many are also of the opinion that the fintech space is still evolving on many parameters and hence the retail investor will need some more time to understand the business models.

100X.VC which has been actively investing in the early startup ecosystem remains undeterred by Paytm’s IPO response.  Ninad Karpe, Partner, 100X.VC said: “100X has funded 70 early-stage start-ups and intends to fund 100 start-ups next year. In the early stage startup arena, we do not see any challenge and in fact, we are witnessing a far greater velocity of ideas from tier two and tier three cities and also from women-led startups.”

Head of a private equity firm said the investors will pick and choose depending upon what is on offer. “The valuation should be attractive enough for the investors. If they think the promoter has not left anything on the table then it would end up like PayTM,” the official said, asking not to be quoted.

Citing an example, he said in the case of Policy bazaar, the investors made additional 15 per cent gains post listing. “Once another startup makes money for the investors, Paytm will be forgotten in a month. Even a small IPOs of Rs 700 crore to Rs 1,000 crore have received demand worth Rs 90,000 crore in the past. Thus showing the appetite of the investors. Paytm is not the end of the story,” he added.