There has been much chatter on how newly-listed firms are not benefitting from initial public offerings (IPOs) because it’s largely the promoters and venture capital (VC) and private equity (PE) players that are cashing out. There is concern the funds raised are not being fully utilised to grow the business.
True, in 2025 about 60% of the funds raised have been via offers for sale (OFS), while the rest is fresh capital. To be sure, the bulk of the funds may not be going back into the company, but a fair bit is. In some instances, the money is being used to repay working capital loans which would strengthen the balance sheet, freeing up cash flows than can be invested in the business.
The fact is that these companies have been able to go public because the PEs and VCs backed them. These investors need to return funds to their shareholders, raise money afresh, and invest in new businesses. They took the risk of putting money to work in businesses that were not sure-shot successes to start with, backing promoters who didn’t really have a track record.
Investor exit
Many of these startups could have gone either way and in fact, there are probably more flops than hits. Unless investors get an exit, they will not invest in the first place. In truth, most of the startups have been backed by foreign capital and investors have waited long years for the businesses to stabilise; think Eternal, Nykaa, Lenskart, Meesho, Swiggy, Physicswallah and hundreds of others waiting to list.
Had these investors not put in the capital in the early rounds and stood by the entrepreneurs, these businesses may not have existed today. It’s not just that these companies have been selling us goods and services, they have, in the process, created million of jobs—both blue and white collar ones.
To expect them to stay on forever is unreasonable. As for the promoters, they too have worked to build a business; in fact, some of them have even bootstrapped their enterprises. If their companies are highly- valued today, they have earned it.
What seems to be rankling many is that promoters are getting an exit at lofty valuations at the cost of retail investors. The fact is the stock market believes that these businesses deserve the valuations that they command. Investors are buying the stocks at these levels of their own free will; no one has put a gun to their heads.
Startups getting more value than legacy players
There has also been some heartburn over the fact that some of the startups are valued more than legacy players. For example, the market capitalisation of Groww post listing put the company within the top 100 most-valued stocks in the country. At close to Rs 1 lakh crore, the stock was more richly valued than many legacy lenders—some of them state-owned.
Again, both retail and wholesale investors are willing to bet on some of these new-age businesses and what IPOs are doing is allowing them to participate in new growth stories. If the over-subscription to mainboard IPOs in the last couple of years has averaged around 20%, it reflects the interest in these stocks. What matters ultimately is the performance of the companies; many a company has raised “fresh capital” and run the business to the ground.