sanjeev bikhchandani: Startups going public will turn profitable in three years, says Sanjeev Bikhchandani
still owns more than 15% in Zomato after its initial public offering (IPO), said his company,
, will continue to remain a long-term investor in the startups it is backing.
Bikhchandani’s comments on profitability aspects come at a time when a growing number of tech startups are going public, even as sceptics are critical of their ability to make profits.
“While public markets are accepting lossmaking companies going public, I don’t think they will support a company that’s going to make a loss for the next five or 10 years. They will believe that there is a path to profit,” he told ET in an interview.
According to him, going public is not an option for all startups. “You are going to get to a place where there is some visibility of profit (next two-three years). I don’t know all the data but the ones I know of — definitely (they have a path to profitability).”
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Nykaa, most of the top-tier startups like
PolicyBazaar that have filed to go public are lossmaking but they are being seen as high-growth companies with some of them recovering fast from the second wave of the Covid-19 pandemic.
Bikhchandani said the current trend of IPOs by local startups will also play a crucial role for investors to believe exits are possible here. The Padma Shri awardee also believes there haven’t been enough large exits for investors through strategic sales or M&A, besides Flipkart which was acquired by Walmart for $16 billion in 2018.
“For the longest time, there were just three-four exits in the tech space — Info Edge, MakeMytrip, Just Dial, Matrimony … those took 15 years. Now, if there are 15-20 IPOs in two years (both India and abroad) and they are successful, the case would have been demonstrated that investors can get great public market exits in India,” said Bikhchandani,
whose first cheque for Zomato was for Rs 4.7 crore in 2010. Today the value of Info Edge’s shares in
is worth more than Rs 16,357 crore (at Monday’s closing price of Rs 139 per share on the BSE). Info Edge holds 15.23% in Zomato.
This would also lead to more strategic sales as well, he said, especially when the likes of Indian conglomerates such as the Tata Group and Reliance Industries have entered the digital economy with big plans. “Some of the valuations would not have been paid five to 10 years ago. So, the market is maturing, even for strategic sales,” he added.
On the abundance of liquidity in the market, he said India will continue to attract more capital but this has also meant he is being more cautious and has to be selective in taking new bets as more startups have emerged compared to a decade back and more investors are chasing them. He also said the ongoing regulatory techlash will bring more attention to India but India, as a market, will have its own growth trajectory different to China, contrary to earlier predictions. He also talked about flipping of Indian startups and the need to address the issue.
Record Capital for Startups
In a year when startups have seen record capital being pumped into India due to abundance of liquidity globally, he said capital is “heat seeking missile” and that it will smell out and sniff out where the return is and it will go there. With IPOs of more good quality startups, investors will pour more capital into the startup economy, he added.
According to him, the excess availability of liquidity is created by the US Federal Reserve’s move to infuse around $4 trillion into the economy which has found its way in India as well. “What’s different this time is that companies are going public which means they are withstanding the scrutiny of public markets. They have now finite targets of going public and therefore they are dealing with strategies accordingly. Public markets impose discipline and require commercial prudence,” Bikhchandani added.
The acceleration in valuation for startups, sometimes 12-18 months in advance, is fine as long as the underlying growth remains intact, he said.
The ongoing regulatory backlash in China on tech companies will also help India gain more investor interest, he said.
ET reported in August that
global investors were looking to deploy more capital in India as conditions remained uncertain in China.
Info Edge, Strategy Remains Long Term
While Bikhchandani’s early bets are going public, creating massive value on the original investment, his strategy remains the same to find the next Zomatos or PolicyBazaar. “Our investing strategy remains the same: Go early, find the right founders, right strategies and invest in them and keep supporting them and stay there for a long time,” he said. Info Edge has been an investor in Zomato for 11 years and in PolicyBazaar for 13 years, he added.
“It’s important in India to be patient. First cheque to IPO takes 12-15 years,” Bikhchandani said.
He highlighted, despite being in PolicyBazaar for 13 years, there is ‘massive growth still remaining’ there and that it will serve Info Edge shareholders well.