Start-up Bubbles- Why Mutual Funds are betting to give Exit to PE Participants?

Today when I saw newspaper, I saw Delhivery coming with IPO. When I saw twitter, I got to know that roughly 2346 crore have been raised from 64 Anchor Investors. Prominent names like Goldman Sachs, Amansa, Aberdeen, Tiger Global, Schroder and Baillie Giffors were international participants. Domestic Institutional funds like SBI, HDFC and ICICI are also participating in this IPO.

The most interesting fact from IPO is that all the founders are moving out from this IPO except Sahil Barua who merely holds 2.19% stake. So when the visions of promoters are so big then why the founders are exiting. For that we are giving you details from prospectus.

Following is the financial numbers of this Company:

Following is the cash flow of Company:

Some more Interesting lines from Prospectus:

They are making losses because of the desire to fuel growth at the cost of financial discipline. They offered gamut of services without ensuring profitability of any.

From the above even a 12th Class student can identify the value of company seeing the financial numbers. What value it can offer. Yet we have high quality Mutual funds participating in such issues to give easy exit to those desperate private equity participants. Is it not mismanagement of public money? Why SEBI allows such IPOs.

Well some more interesting lines I should share from Red Heiring Prospectus.

It is interesting that the industry might be fragmented but it’s a great opportunity. There are players who are maintaining healthy bottom line and bringing value to investors.

Seeing these lines and comparing it with quality of Brand names participating as anchor investors, it more sounds like FOMO rather than market risks which Mutual Fund is subject too.

Recently Spot On was taken over and with lots of glitches there was some level of integration which resulted in catastrophe for customers and loads were diverted by customers to competetors.

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From the above points it has been only observed that near to IPO, losses are reduced substantially and still the company remains in losses.  But the funds are actively participating with public money in such IPO. Like in this case the company itself is admitting that they will be making losses in near future due to the intensity of competition. The financials reflects that they have increased turnover with substantial cash burn. The moment the cash support Is not given, the company will become bankrupt. In anticipation of this it is infrerred that once the founders are moved out, followed by anchor investors, it is anticipated that there will be change in management and a few loss making business will shut down. May be a year down the line.

So, what’s the use of allowing such companies to come up with IPO.

The only answer is easy exit to big whales.


In 2021 we had a flood of IPOs in Market. Most of the IPOs are related with new age businesses. That’s good when we hear it. But in the Indian Market context, it was first time that the loss-making new age businesses got listed on stock exchange. SEBI allowed listing of such companies having no profitability since inception of company.

Even the listing point is ok. But the valuation of such companies crossing Rs 50,000 crores whiles sale of these companies was less than 2000 crore and forget about the profitability of such loss-making ventures.

Recent examples are PayTm, PB Fintech, Zomato, Star Health, Policy Bazaar, Nazara etc. Most of them have corrected more than 50% like the biggest hyped Paytm falling more than 70% or Zomato falling more than 60% from all time high.

The interesting point is that in many cases the Anchor investors initially participated in IPO but at the last date of subscription, they withdraw application. Isn’t  called as cheating just to pump IPO and deliver it to retailers.

At the end I can only say that either its Mutual Fund or Its retailers, all involves hard earned money of public which cannot be called as funny money or dumb money. Today many IPOs are pending with SEBI for approval and they are considering to change the rules. But at the same time, they reduced time limit for holding in case of Anchor Investors. That’s seriously a big issue. SEBI should not allow loss making company to participate in IPO which clearly states in DHRP about same.  

Hope some parameters will be decided along with amendments in SEBI rules regarding such startup bubbles getting too much hype. Once this bubble ends, only tears will be left in eyes as at the end retailers will become long term investors in such loss-making companies.

From CA Nishant Maheshwari

In case you are interested in making a contribution to our writing, please do so in the following account:

Account Number: 00000037522669317

Account Holder Name:Rashi Maheshwari



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