Startups, specially those looking for initial public offerings (IPOs), are on a clean-up drive. With investors now looking for better financial performances — profits over growth — they have little option but to stay laser-focused on the bottom-line. So trimming of manpower and reshuffling of leadership teams are now the most popular themes.
Take Swiggy, for example. One of the reasons behind the restructuring drive at the food delivery firm was the pressure from investors like Prosus and SoftBank in the run up to its $1.2-billion IPO, industry experts point out. In January, Swiggy had asked 350-400 employees to leave. Moreover, it merged its premium grocery vertical InsanelyGood and Swiggy Mall with its quick-commerce service Instamart.
Even late-stage startups and category leaders are forced to play the IPO game smartly. As Somdutta Singh, an LP angel investor and ex-member of Niti Aayog, points out, “Swiggy, for instance, needs to showcase a clear path to black ink. And trimming the fat, especially in non-core areas, can help it show potential investors a stronger financial picture.”
Singh adds that Swiggy’s core delivery business might be humming along, but ventures like Instamart are likely loss-making.
Content-to-commerce platform The Good Glamm Group, which is planning to go public by Diwali 2025, has also reduced its workforce by 15% or 150 employees in the last 12-15 months. With such cost-cutting measures, it aims to turn profitable in FY25 and new group CFO, Kamal Lath, experts say, will work towards this.
According to reports, the restructuring exercise happened over a period of about 12 months and the company secured Rs 245 crore funding through a rights issue at a flat valuation of $1.2 billion from existing investors, including Warburg Pincus. At the same time, many promotions were given to boost morale.
IPO-bound travel tech startup ixigo also bounced back strongly in FY23 with a net profit of Rs 23.4 crore and an operating revenue of Rs 501.2 crore, after reporting a net loss of Rs 21.1 crore in FY22. Karan Gupta, a financial structuring and investment strategy expert, believes Ixigo’s financial turnaround in FY23, marked by a significant increase in revenue and a return to profitability, seems strategically aligned with its IPO aspirations. “It was likely orchestrated to position the company as a robust investment opportunity in the public market,” Gupta told FE.
In April last year, Reliance Retail-backed Dunzo cut its workforce by 30% even as it raised $75 million.
Meanwhile, several companies, including InShorts, Dealshare, Cultfit, Mygate and Third Wave Coffee, have appointed new chief executive officers to focus on governance and profitability. The idea behind these measures, industry insiders say, is to streamline operations and improve financial metrics. “The startups feel that demonstrating a lean, focused and profitable operation enhances the company’s appeal,” said the CEO of a startup. He added that this would go down well with public market investors or potential late-stage venture capitalist firms and private equity funds.
Some companies whose finances have improved are diversifying their product lines, forming strategic partnerships or investing in technology to drive sustainable long-term growth. Last month, software-as-a-service (SaaS) startup Unicommerce unveiled a GenAI platform, UniGPT, to assist e-commerce companies. The Snapdeal-backed startup filed its draft red herring prospectus (DRHP) with market regulator Sebi early this year.
Flipkart’s focus on profitability also paid off big time. Regulatory filings show that the company received a cash infusion of about $111 million in two parts from related entities based in Singapore in January. Some time back, Flipkart renegotiated deals with vendors and delivery partners, squeezing out inefficiencies and cost savings. Moreover, as Singh points out, it leveraged data analytics to identify underperforming categories or regions and adjusted the strategy accordingly. “It prioritised customer experience, leading to higher retention and repeat orders,” she added.
Globally, too, companies focussing on profitability before IPO is not uncommon. For instance, prior to its IPO in 2013, Twitter made substantial efforts to show profitability. “In the years leading up to its IPO, Twitter focused on ramping up its advertising revenue and streamlining its cost structure. Despite not being profitable at the time of its IPO, the significant growth in revenue and the strategic reduction in losses demonstrated a clear path to profitability that was crucial for attracting IPO investors,” said Sonakshi Pratap, a serial entrepreneur and a finance expert.
Airbnb also provides a notable example of a company that prioritised profitability ahead of its IPO. It made significant cuts to its marketing expenses and laid off about 25% of its workforce.