Public Listing Of Loss Making Startups |
| Credit: Quora |
INTRODUCTION
• Amid IPO rush, newly listed companies saw $231 MN in losses in Q2 FY22
• Some of the biggest startups in Indian tech continue to incur losses even after being listed publicly
• Just 5 out of 11 newly listed Indian tech startups that went public in 2021 reported losses in their previous financial year
• Startup founders have not displayed the ability to creat scale that can bring profitability, despite taking advantage of lower marginal costs in tech
WHAT'S THE SCENARIO
• Freshworks ($107 Mn), Paytm ($62 Mn) and Zomato ($58 Mn) incurred the highest losses in their recent financials
• Cartrade, which was among the profitable companies in FY21, reported a loss in both the quarters in FY22
• The key characteristic that differentiates most of these tech firms from other firms launching their IPOs, is that they are loss making firms
REASONS
• Shareholders are likely to wait for years in the case of highly scaled up companies such as Paytm and Zomato
• No ecommerce, food delievery or fintech startup has come close to showing profitability quarter after quarter, hence there is a long road to profits
• The key reasons for imposing such high losses are the high employee acquisition costs, high sales promotion expenses and high cost of acquiring the latest technology
THINGS TO KEEP IN MIND
• The investors investing in tech startups need to realise they are investing in potential rather than profitability
• The potential of a firm is defined by 3 M's Meaning, Management and Moat
• Investors need to do their homework and invest accordingly
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