Startup IPOs Under Scrutiny: Are They Overpriced?

The recent delay of Zepto's IPO has ignited a debate about the valuation of startup IPOs in India. Pranjal Kamra, a popular influencer, argues that the promotion of unlisted shares is misleading, stating, 'Buying unlisted shares is legal in India but lacks a dedicated regulator.' He emphasizes the risks involved in these transactions, which often occur through informal channels like email and WhatsApp, raising concerns about delivery risks. Kamra believes that platforms aggressively promote unlisted shares due to their opaque pricing, allowing for larger profit margins compared to regulated, listed stocks.

On the other hand, Sanjay Kathuria, a Youtuber, highlights the specific case of Zepto, noting that the company's IPO was deferred after mutual funds valued it at significantly less than expected—between $2.5 billion and $3 billion, down from an initial valuation of $7 billion. Kathuria explains, 'Zepto's pre-IPO valuation fell to $4.5 billion from planned $7 billion,' indicating a substantial drop that reflects a broader concern regarding inflated startup valuations. He further mentions that the expected IPO size has also decreased, suggesting a potential shrink to ₹5,000–6,000 crore.

The divergence in perspectives raises critical questions about the overall health of the startup ecosystem. Kamra's focus on the risks of unlisted shares suggests a skepticism towards the integrity of the market, while Kathuria's analysis of Zepto illustrates how even high-profile startups are facing scrutiny over their valuations. Both creators converge on the notion that the startup landscape is rife with uncertainty, but they approach the issue from different angles—Kamra from a regulatory and transactional risk standpoint, and Kathuria from a valuation perspective.

This debate reflects a growing concern among investors regarding the sustainability of startup valuations, especially in light of Zepto's situation. With the market for IPOs becoming increasingly competitive and complex, understanding the implications of these valuations is crucial for retail investors. As Kamra warns, 'You have to be careful with unlisted shares,' and Kathuria's detailed breakdown of Zepto's financials urges investors to be more discerning before investing in any IPO. The intersection of these viewpoints underscores the need for transparency and regulation in the rapidly evolving startup landscape.