Mastering IPO Journey: Navigating the process and ensuring post-listing success

Market preferences generally lean towards a larger primary raise over a purely secondary sell-down through OFS. A significant primary component signals growth intent and bolsters investor confidence. However, a substantial OFS can also be well-received if:

1) The promoters and founders have been actively managing the company for at least 3-4 years prior to the IPO.

2) There is a clear plan for the promoters and management to continue their roles for 3-4 years post-IPO.

Examples like Firstcry, with a 60% OFS, and Sagility, with a 100% OFS, demonstrate how these conditions can help secure market approval for significant secondary transactions.

Understanding Market Dynamics

The share of domestic mutual funds in Indian public markets underscores the critical role of a few concentrated asset management companies. Securing their participation as anchor investors is key to a successful transaction. These institutions are highly discerning and often demand significant discounts in IPO pricing.

Larger IPOs generally garner more interest from marquee funds and bankers due to their scale and ability to attract high-quality institutional investors. Founders should be prepared to align with these dynamics to maximise investor interest and engagement.

Determining the Optimal IPO Size

A well-calibrated IPO size is critical for achieving the twin goals of raising capital and attracting marquee investors. Companies should aim to:

# Raise as much primary capital as needed for foreseeable growth needs.

# Ensure the OFS size is attractive enough to bring in long-term investors.

For optimal interest, targeting an IPO size of INR 1,200 Cr – INR 1,500 Cr and a market capitalisation of INR 4,000 – INR 5,000 Cr is recommended.

Post-IPO Shareholder Management and Block Sales

One of the most significant post-IPO challenges is managing shareholder churn and ensuring price stability. Most pre-IPO investors are subject to a six-month lock-up period post-listing. While lock-up expirations can introduce volatility, coordinated block sales can mitigate this risk.

Companies should take an active role in managing these sales, ensuring they are timed post-strong results or during periods of positive momentum. For example:

* Highdell Investments sold 18 million shares of Kalyan Jewellers at INR 344 per share, and the stock later doubled in value within seven months.

* Five Star Business Finance executed seamless block trades, allowing major investors like Matrix, Norwest, and TPG to exit at optimal intervals while maintaining price stability.

A robust investor relations team is crucial for orchestrating such trades, as is participation in investor conferences and roadshows to build strong institutional relationships.

Building a Long-Term Investor Base

The ultimate goal of the IPO process is to replace early backers with a core group of long-term investors who believe in the company’s growth potential. These investors could include institutional players, sovereign wealth funds, family offices, and HNIs. Companies should:

1. Engage with high-quality investors well ahead of the IPO to build trust and alignment.

2. Focus on attracting those who will hold shares for years and contribute to the compounding story, rather than short-term players seeking to capitalise on IPO discounts.

Examples of successful transitions include Affirma Capital’s investment in TBO Tek, where a measured approach to stake sales resulted in a ninefold return.

The Last Vestige: Coordinating Cleanup Trades

The final phase of transitioning from private to public markets involves “cleanup trades,” where the last remaining shares held by early investors are sold. While the market often perceives these trades negatively, they remove overhang and bring clarity to the stock’s supply dynamics.

Successful cleanup trades hinge on collaboration with investment banks and proactive investor relations. For example, Five Star Business Finance achieved orderly exits for multiple investors while maintaining market stability, proving that such trades can be executed seamlessly with the right strategy.

Conclusion

An IPO is more than just a capital-raising exercise—it’s a strategic milestone that reshapes a company’s ownership and governance structure. By making smart decisions during the IPO process and managing post-listing dynamics, founders can secure a stable and committed investor base that supports their long-term vision.

Ultimately, the IPO journey is about replacing early backers with new believers who will champion your company’s growth story for years to come. By following this playbook, you can set your company on the path to sustained success in the public markets.

(Alok Bathija is Partner, Corporate Development, Accel.)

Views are personal, and do not represent the stance of this publication.