Highlights from The Founders’ Forum: Are You Ready to Play the Public Markets Game?
I wanted to share with you the highlights of an exciting evening we spent with founders of IPO bound startups and the team at JM Financial Ltd.
On October 22nd, a rainy Tuesday evening, 14 founders from 12 prominent IPO-bound startups braved the Bangalore traffic to join us for a thought-provoking session we hosted in partnership with JM Financial Ltd. The mission? To help founders assess whether they are truly ready for the demands of the public markets.
The session began with founders reflecting on the six core principles from the xto10x IPO Academy Manifesto, developed with Mr. T.V. Mohandas Pai. Two principles stood out: the importance of providing accurate, predictable guidance and the necessity of building a scalable team. With this foundation in place, we moved on to three insightful games: :
1. The Preparedness Game
In classic xto10x style, we started with a quiz. Founders tackled five questions distilled from our analysis of 150 IPOs over the past four years, uncovering key IPO insights:
- Growth vs. Profitability: Startups may lead in revenue growth, but markets favor companies that balance growth with robust EBITDA and ROCE.
- IPO Returns and Market Comparison: While the Nifty 500 index would have turned ₹100 into ₹121 over two years, investing in startups would have resulted in ₹82. Only two startups — Rategain and MapMyIndia — outperformed the index two years after IPO.
- Market Trends: Startups listed in 2023-24 have generally outperformed earlier IPOs, largely due to being EBITDA-positive at listing.
- Narrative vs. Reality: The market penalizes inconsistency. A mismatch between company narrative and actual performance can negatively affect valuations, as seen with Mamaearth and Delhivery.
2. The Valuation Game
Next, founders took on the challenge of determining their own valuation multiples by benchmarking against industry peers. Key takeaways included:
- Benchmarking with Peers: Regardless of direct competitors, all public companies are eventually compared with listed peers based on core metrics like Revenue CAGR, EBITDA, and ROCE.
- Category Creators: For founders pioneering new categories, comparing different facets of the business to multiple peers is crucial. A clear, consistent narrative stands out amid thousands of listed stocks.
- High Valuations through Discipline: High valuations require founders to “act public” early. Companies like Ixigo, with eight quarters of consistent guidance pre-IPO, gained favorable comparisons to MMT and IRCTC, both of which trade at premium multiples.
3. The Ratings Game
We wrapped up by exploring real-life analyst ratings for companies like PolicyBazaar and IndiaMART. Here are two notable insights:
- Anchored Goals: Companies with clear, ambitious targets—such as PolicyBazaar’s ₹1,000 crore PAT goal—tend to build investor confidence, even if profitability is not immediate.
- Consistency in Meeting Guidance: Consistency is crucial. Repeatedly missing guidance, as with IndiaMART, can lead to a downgrade to “SELL” rating, eroding market confidence over time.
We concluded the evening with a self-assessment exercise, helping founders to gauge their readiness to create lasting shareholder value. A seven-course meal at Le Cirque Signature provided a fitting close, offering space for reflection and camaraderie.
Thank you for your continued support and involvement in the xto10x IPO Academy. I look forward to working together as we guide the first cohort towards building exceptional public market companies.
Warm regards,
