Investments

Size no bar: Why smaller startups are making a beeline for public markets

Nikhil Patwardhan

October 03, 2024 | 12 Min Read

The buoyancy in India's public markets, contrasted with the sluggishness in private markets—particularly for growth capital—is prompting founders to consider going public earlier. Founders are now seeking better long-term valuations by tapping into the public markets, even for growth capital.

Key Takeaways

Peak XV's decision to cut growth-stage investments highlights the slowdown in private tech investments in India
The country's public markets, on the other hand, are growing strong and commanding higher earnings multiples than most global peers
The country's startup ecosystem is now exploring going public, even for growth capital, in the quest for higher long-term valuations
Unicommerce's banner IPO in August showed how India's public markets welcome smaller, profitable tech companies with open arms

On October 2, Peak XV Partners, one of India’s leading venture capital firms, told its investors (Limited Partners, or LPs) that it would return approximately $465 million from its latest $2.85 billion fund.

The firm said that it aimed to deploy capital more cautiously since the Indian public markets have seen a significant re-rating, with mid-cap P/E (price-to-equity) multiples expanding over the past year, leading to elevated valuations in late-stage growth and pre-IPO companies.

For instance, the average P/E ratio of the Nifty Midcap 100 index, which has traditionally hovered around the mid-20s (barring the early irrational exuberance of Covid), currently stands at around 45.

While Peak XV will continue investing in seed and early-stage startups, its investments in growth-stage companies will now be more measured.

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