Being listed on the stock market is all about credibility, visibility, and entry to a new level. The IPO market in India is growing rapidly today. In the last few years, numerous companies have gone public and received a huge response from investors.
Although this journey is different for everyone. Each step involves complex laws, strict regulatory rules, and extensive preparation. Therefore, entrepreneurs need to understand the issues clearly in advance. In this blog, we will explain in simple terms which startups can do an IPO, the process to follow, the platform to choose, and its benefits and challenges.
What is an IPO and its Importance to Startups?
An IPO or initial public offering is when a private company opens its shares to the public. Currently, the company is no longer limited to the founders or initial investors but is accountable to the market. After listing, the company’s shares can be traded on exchanges like NSE or BSE.
It is a great opportunity to raise funds and increase brand recognition and credibility for startups. However, with this comes increased responsibility – regularly disclosing financial information, adhering to corporate governance, and maintaining transparency towards investors.
Why Should a Startup Consider Going Public?
An IPO can be a new horizon for startups. Firstly, it provides an opportunity to raise large-scale funds. It helps in expanding the business, introducing new technologies, or expanding the market.
Secondly, being listed creates a culture where governance and transparency are more important. This increases investor confidence and strengthens the internal structure of the company.
Thirdly, going public increases the acceptance and recognition of the brand many times over. Starting with customers, partners trust a listed company more. In addition, it is a kind of liquidity event for founders and early investors, where they can get back a part of their investment.
Finally, IPOs create new strategic opportunities such as acquisitions, foreign partnerships, and entry into international markets.
Eligibility Criteria for IPO in India
A startup must first comply with the rules of SEBI and the Companies Act to do an IPO in India. These provide clear guidelines on certain public information and conditions related to share issuance and investor protection.
The company must have a minimum of ₹3 crore of sustainable assets in the last three years to do a mainboard IPO. The total profit must be at least ₹15 crore. In addition, the net worth must be consistently more than ₹1 crore, and the post-issue capital must be at least ₹10 crore.
On the other hand, an SME IPO is suitable for relatively small startups. Here, the criteria are much more relaxed. For example, the post-issue capital can be as low as ₹1 crore. So, companies not yet profitable or with a limited financial history can also be listed this way.
In addition, maintaining corporate governance and transparency is also mandatory. The board of directors’ structure, regular audits, financial reporting disclosure, and internal control systems must be strong. Only after fulfilling these criteria can a startup apply for an IPO and be able to confidently stand before investors in the market.
Choosing The Right Platform: Mainboard or SME IPO
The right platform to choose depends on the size and financial condition of the startup. Mainboard IPO is suitable for those who are already generating stable income, getting interest from big investors, and have built a strong position in the long term. It increases brand visibility and gives an advantage in competition with large institutions.
On the other hand, SME IPO is a steppingstone for small and medium-sized businesses. Through this, they get the opportunity to enter the stock market at a relatively low cost and on easy terms. However, the number of investors is limited here, and the responsibility of following the rules after listing remains.
Therefore, the mainboard gives more prestige and visibility, while the SME IPO lays the initial foundation for the startup to rise to the big leagues.
Step-by-Step IPO Process in India
Given below is the step-by-step IPO process in India-
1. Formation of IPO Team
The first step is to appoint a team of experienced experts. It includes merchant bankers, legal advisors, registrars, and underwriters. They guide the entire process.
2. Due Diligence
In this step, the company’s financial documents, legal agreements, tax records, and business strategy are thoroughly scrutinized. This ensures all the information is transparent and accurate.
3. Submission of Draft Red Herring Prospectus (DRHP)
The DRHP has to be submitted to SEBI. It mentions the company’s financial information, risks, fundraising objectives, and the background of the directors.
4. Marketing and Roadshow
If SEBI approves, the company conducts a roadshow and presents itself to potential investors. This creates interest in the market.
5. Subscription and Allotment
After the IPO opens, investors apply to buy shares. Then the shares are allotted, and the remaining applicants’ money is returned.
6. Listing and trading begin
The final step is the company being officially listed on the stock exchange. Trading in shares begins within a few days.
Although the entire process usually takes 6–9 months. However, the time frame may vary depending on the company’s readiness and market conditions.
Costs and Challenges of Going Public
The IPO process is time-consuming and expensive. One has to pay fees for merchant bankers, legal advisors, registrars, and underwriters to get listed. These include the stock exchange and SEBI fees, advertising, and roadshow expenses. While the cost of an SME IPO is relatively low, the cost of a mainboard IPO can run into crores of rupees.
Market volatility is another major risk. Failure to IPO at the right time can lead to a loss of investor interest. Many startups also face last-minute compliance lapses, weak financial documents, or legal complications. This delays the listing process and increases costs.
The help of an experienced advisor is essential to overcome these challenges. They help in complying with the regulations and determining the right strategy for the company. Therefore, embarking on an IPO journey without expert advice increases the risks considerably.
To Wrap Up
An IPO can transform a startup into a market leader. However, every stage of this journey requires meticulous preparation, strict adherence to rules, and a long-term vision. An IPO also strengthens the discipline, transparency, and credibility of an organization.
The complex process can be easily managed with the right advice. Experienced guidance can save time and ensure maximum results.
If your startup is thinking of going public, Investorlink is ready to help you. We will guide you through every step, from the due diligence to the final listing. Connect with our experts today and start your IPO journey with confidence.
FAQs
One has to follow certain conditions set by SEBI to do a mainboard IPO. These include consistent profits, a certain net worth, and business stability. However, an SME IPO is an easier route for small companies. The rules regarding profits and the number of investors are relatively relaxed on NSE Emerge or BSE SME platforms. So, these can be a good start for new businesses.
SME IPO is mainly for small and medium-sized companies. Here, the capital requirement is much lower; it can start from around Rs 1 crore. For a mainboard IPO, there must be large revenues and strict financial qualifications. While an SME IPO is cost-effective, a mainboard IPO brings much more investor confidence and visibility in the market.
An IPO usually takes 6 to 9 months to complete. First, financial and legal verification is done, and then the documents are submitted to SEBI. There is promotion, meetings with investors, and subscription. Finally, the shares are listed on the exchange. However, if the company is not well prepared or the market is unstable, the time may increase further.
The biggest advantage of an IPO is raising large amounts of funds. This can be used to expand the business and invest in new projects. Founders and early investors can easily sell shares. Listing on the stock market increases the credibility of the brand. In addition, transparency and good governance are created, which strengthen the business in the long run.
There are many risks, even if an IPO is successful. Market volatility can affect the valuation of the company. The costs of listing are also not small, such as merchant bankers, lawyers, and exchange fees. There is a risk of fines if there are errors in financial documents or compliance. In addition, after listing, investors always have to be in the spotlight, which can be a source of stress.
No, not all IPOs are successful. Success depends on market conditions, investor interest, and company preparation. Sometimes, even good companies can get less response if they do not IPO at the right time. A strong financial position, a clear business plan and clear communication with investors are essential to be successful. The help of an experienced consultant increases the chances of success.
Yes, Foreign Institutional Investors (FIIs) and Non-Resident Indians (NRIs) can invest in Indian IPOs. However, they have to follow the rules of SEBI and RBI. The presence of foreign investors usually increases confidence in the IPO and creates demand. This is a big advantage for those who want international recognition. However, additional disclosures and rules have to be followed.
After listing, the company has to publish financial reports every three months. Regular board meetings have to be held, and communication with investors has to be maintained. It is mandatory to inform about any major changes or risks immediately. Sometimes the promoters’ shares are locked in for a specific period of time. Following these rules further increases the credibility of the company in the market.
If the conditions of the mainboard IPO are not met, then the SME IPO is a good alternative. One can get listed on the NSE Emerge or BSE SME platform with relatively simple rules. Alternatively, venture capital, private equity, or strategic investment can also be taken. If the financial structure is gradually improved, it is possible to qualify for a large IPO in the future.
The cost of an IPO depends on the size of the company and the platform. Usually, the cost includes the merchant banker, lawyer, registrar, underwriter, and exchange fees. SME IPOs are relatively low-cost, costing a few lakhs of rupees. The cost of a large mainboard IPO reaches crores. The cost can be controlled to some extent if you have experienced advisors.