With an increased focus on profitability, start-ups are poised for a promising road ahead, including a potential IPO surge of 90 companies by FY28, according to the Redseer Report.

Offering an insight into the IPO landscape, the report states that after a period of a sharp correction in stock prices until Q4 FY22, the listed new-age tech players bounced back in FY24, indicating a trend of gradual recovery.

Indian start-ups have been focusing on profitability, weathering macroeconomic headwinds, and a funding winter. The result, which the partner says will be a sizable pipeline of IPO-ready companies in the next five years, explained Rohan Agarwal, partner at Redseer.

In contrast to FY21, nearly twice the number of Indian unicorns were on their way to profitability in FY23. He elaborates that start-ups have substantially improved their profitability in FY24, and going forward, about 50 per cent of unicorns in India will be profitable by FY27.

However, the story is bleak for 20 per cent of unicorns, who will likely struggle due to regulatory challenges, plummeting demands, and unclear business models. These could pivot to new models, get acquired by other companies, or close for good.

Tech IPOs

Indian tech IPOs are just beginning, and the future holds massive potential. This optimistic outlook is driven by factors like a booming tech ecosystem, strong investor interest, rapid digitisation, supportive policies, and global market opportunities.

According to Redseer, the tech contribution to public market capitalisation in India is only about 1 per cent, whereas the same is roughly 25 per cent in the USA, so there’s a large headroom for value creation in the tech space.

Moreover, India has 100 unicorns and more than 150 ‘soonicorns’ (a recently launched business that has the potential to become a “unicorn”) with a robust number of tech companies that will create a strong pipeline of start-ups with IPO potential.

Also, the scenario looks similar to what was seen during the US tech bubble, as tech IPOs grew 3x in the years following the dot-com bubble.

Areas to focus

“By FY25, India is likely to have up to 40 listed/IPO-ready, new-age companies, which can grow to 90 by FY28. SaaS, B2C product companies, and fintech are among the most promising categories to produce IPO-ready companies,” the report read.

These companies have sizable revenues, sustainable growth, strong EBITDA, and operate on defensible business models, making them strong candidates for an IPO.

In preparation for a successful initial public offering (IPO), Agarwal stresses three key areas that IPO-bound companies need to focus on: prioritising building strong investor relationships and trust, emphasising reputation, and transparency; companies must proactively engage with potential investors well in advance of the IPO to establish rapport, and providing clarity on business models and key metrics is crucial to enabling investors to make informed decisions about their investment.

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