“Present shareholders shouldn’t really feel shortchanged on the finish of it, if you find yourself with a pop of 100 per cent, you’ll have left an excessive amount of on the desk,” he wrote, earlier than including that institutional buyers too wanted to “really feel good within the aftermarket with the inventory by no means going beneath the problem value.”
The e-mail, revealed in Megha Vishwanath’s new ebook “Unseen: The Untold Story of Deepinder Goyal and the Making of Zomato,” exposes not simply the mechanics of IPO pricing, however the philosophical pressure on the coronary heart of taking a high-growth firm public: how you can steadiness founder ambition, institutional urge for food, retail sentiment, and long-term repute in a single pricing choice.
Bikhchandani’s warning carried a easy fact: retail buyers getting harm was “dangerous karma” and an underwater debut can be a failure in public notion.
Three years later, with a number of new-age tech listings buying and selling beneath their difficulty costs, that warning reads much less like recommendation and extra like prophecy.
Bikhchandani’s framework centered on three constituencies, every with competing pursuits. Present shareholders wanted satisfactory returns with out leaving extreme worth on the desk. A 100% first-day pop, he warned, would sign “you possibly can have gotten twice the cash for a similar dilution or the identical cash for half the dilution”, successfully shortchanging present buyers.Additionally Learn | Most costly Nifty inventory ever? Everlasting at 455 PE dares you to doubt the hypeIncoming institutional buyers, in the meantime, required confidence that their allocations would not instantly sink. “They are going to really feel good if there’s a sustained pop of 25–30 per cent within the aftermarket with the inventory by no means going beneath the problem value even for a day,” he wrote, acknowledging this was “a tough act to fine-tune and should you obtain this it can solely be by fluke.”
However it was his evaluation of retail buyers that carried the sharpest edge. “Retail buyers get harm when an IPO goes underwater within the aftermarket. In India, when retail buyers get harm, it’s dangerous karma. The media go after you. Your prospects go after you, those that have invested within the IPO and also you get trolled on Twitter.”
His verdict was stark: “An underwater IPO is a failed IPO within the standard discourse. The IPO is the one greatest PR alternative within the lifetime of this firm. Let’s not get it flawed.”
The Bankers’ Dilemma
Bikhchandani devoted appreciable house to explaining the structural dynamics that form IPO pricing and why founders should not totally belief their funding bankers on valuation calls.
“Keep in mind, an organization does an IPO solely as soon as in its life. To that extent, you’re a one-time buyer,” he defined. “The buyers, nonetheless, are their perpetual prospects. They’ve to return to them daily with extra offers and if the investor is upset with them as a result of they bought them an IPO which subsequently went underwater, they won’t be blissful.”
The implication was clear: bankers’ incentives skew towards pleasing buy-side establishments somewhat than maximizing issuer worth. “In IB terminology (and you recognize this primary hand, Akshant), they name you the corporate and so they name buyers shoppers. In that sense, you aren’t the shopper, you’re the product being bought.”
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His recommendation: “You possibly can kick the tyres with the bankers on the valuation and try to assess at which value level the pushback is coming and for what cause: Is the pushback for real causes (the IPO will really run the chance of going underwater publish itemizing or maybe being beneath subscribed) or is it as a result of they need to preserve buyers blissful?”
The Information Edge Precedent
As an example his thesis, Bikhchandani recounted Information Edge’s personal 2006 itemizing, which noticed file oversubscription and a near-100% first-day pop. “We felt nice in regards to the over subscription… and all of the hosannas that had been showered upon us by buyers, media and the general public,” he wrote. “Nevertheless, we had been additionally acutely aware about the truth that we most likely left an excessive amount of cash on the desk.”
The vindication got here two years later throughout the 2008 world monetary disaster, when Information Edge’s inventory bottomed at 25% of its peak however remained above the IPO value. “Of the 40 or 50 corporations that had listed round that point, there have been solely two that by no means went beneath their IPO value; we had been one,” Bikhchandani famous. “And we felt proud that even within the worst of occasions, we had not bought anybody shares the place consumers misplaced cash at that value.”
Over fifteen years and two subsequent certified institutional placements, Information Edge maintained that file. “No investor ever misplaced cash on shares that we bought them. It is a good repute to have amongst buyers.”
Why It Nonetheless Issues
Zomato ultimately priced its IPO at ₹76 per share, elevating ₹9,375 crore in India’s largest new-age tech itemizing on the time. The inventory opened at ₹116, a 53% pop, earlier than settling right into a risky trajectory that noticed it fall beneath difficulty value throughout 2022’s tech selloff, solely to recuperate considerably since.
Bikhchandani’s framework anticipated exactly this dynamic. His emphasis on conservative pricing, retail sentiment, and long-term repute provides a counterpoint to the growth-at-any-cost ethos that characterised many 2021-era listings. With a number of high-profile IPOs nonetheless buying and selling beneath their difficulty costs, his warning about “dangerous karma” from underwater retail buyers appears prescient.
The e-mail’s closing traces captured the existential shift that accompanies going public: “Deepinder, to start with, the corporate belonged to you. When you have got co-founders and workers and buyers, then the corporate not belongs to you alone (although you might need thought in any other case!!!). Now you belong to the corporate. Welcome to the world of listed corporations.”
(Megha Vishwanath’s ebook ‘Unseen’ on the making of Zomato is printed by Penguin and hits shops this month)
