New age IPO valuations are too disruptive
The recent flop show of various IPOs from new age technology companies has raised concerns over valuations of such IPOs. Raising public funds for unidentified objects and factoring in assumed, faraway profits leads to poor resource allocation raised by such IPOs. Early investors make profits with exit at hefty premium while others continuously loosing. This trend may impact the start-ups ecosystem of India. A further innovation is emergence of new age technology companies, who raise funds for ‘Funding of Inorganic Growth Initiatives’, which include future acquisitions, investing in new business initiatives and strategic partnerships, but do not identify the target acquisition or specific investments to be made out of issue proceeds. Future acquisitions, expansion of client base, rider base, employee base, etc., are possible only if there is a ‘future’ for the company. These days, the shelf-life of companies itself is shrinking. The average lifespan of a company has, reportedly, reduced to about 15 years as compared to 90 years a century ago.
