The Path to IPO for Startups: Navigating Growth, Governance, and Market Readiness

Going public is often viewed as the pinnacle of startup success, but the path to an Initial Public Offering (IPO) is complex, demanding, and requires meticulous preparation. Especially in today’s volatile markets, the IPO process demands not just financial strength but also governance, operational maturity, and strategic clarity.

In 2023, global IPO activity dropped to its lowest in years, with just 1,298 IPOs raising $123.2 billion, down 26% by deal volume and 32% by proceeds compared to 2022, according to EY’s Global IPO Trends 2023 report. In India, however, the narrative was more resilient: as per EY, India ranked among the top five IPO markets globally in 2023, with over 220 IPOs raising around $6 billion.

For Indian startups aspiring to enter public markets, understanding the structured path to an IPO is more critical than ever.

1. Building a Scalable and Sustainable Business

Before even considering an IPO, a startup must achieve meaningful scale with predictable, sustainable revenue streams. Investors today are skeptical of loss-making listings without a credible path to profitability.

According to a 2023 report by Bain & Company, Indian startups raised only $8 billion in venture funding in 2023 (a 65% YoY decline). Investors, now more cautious, favor companies demonstrating sustainable unit economics rather than just hypergrowth.

Checklist for readiness:

• Positive or near-positive EBITDA margins
• Gross margins exceeding 50% in most sectors (exceptions in deeptech/healthtech)
• Strong recurring revenue base (especially for SaaS and subscription businesses)
• Demonstrable market leadership in the core segment

2. Strengthening Corporate Governance and Compliance

Corporate governance is non-negotiable. SEBI (Securities and Exchange Board of India) mandates stringent compliance frameworks for listing.

Mandatory elements include:

• Appointment of Independent Directors (at least one-third for listed companies)
• Formation of key committees (Audit, Nomination & Remuneration, Stakeholders Relationship)
• Quarterly financial reporting in line with Indian Accounting Standards (Ind-AS)
• Rigorous related party transaction disclosures

Startups like Zomato and Nykaa were early adopters of corporate governance norms even before filing their DRHP (Draft Red Herring Prospectus), setting a strong precedent.

3. Cleaning Up the Cap Table

An overly complex cap table (capitalization table) can deter IPO success. Investors expect clear equity structures, limited rights complications, and no excessive liquidation preferences.

Steps to optimize:

• Consolidate preference shares
• Convert any convertible notes (SAFE, CCDs) well before filing
• Limit secondary exits just prior to IPO unless strategically required
• Align ESOP (Employee Stock Option Plans) structures transparently

According to Tracxn, Indian IPO-bound startups that succeeded in 2022–2023, such as Mamaearth and Yatra Online, made cap table simplifications a pre-IPO priority.

4. Financial and Operational Audits

SEBI and market investors require clean audited financials—typically for three consecutive financial years.

Audit best practices:

• Statutory audits by a reputed auditor (Big 4 or SEBI-registered firms preferred)
• Quarterly internal audits and financial controls reviews
• IFRS or Ind-AS readiness (especially for tech, SaaS, and consumer companies)
• Addressing any historical tax or legal compliance issues

A Redseer report on tech IPOs highlighted that companies with multiple auditor changes or financial restatements faced deeper scrutiny and valuation discounts at the IPO stage.

5. Selecting the Right Investment Bankers and Advisors

Investment bankers play a pivotal role in valuation, marketing, and book-building processes.

Selection criteria:

• Expertise in the startup’s sector (tech, fintech, consumer, healthcare, etc.)
• Strong relationships with institutional investors and analysts
• Proven track record of successful listings (domestic and global)
• Deep understanding of SEBI and exchange listing requirements

In India, firms like Kotak Mahindra Capital, Axis Capital, ICICI Securities, and foreign players like Morgan Stanley and Goldman Sachs are often lead managers for high-profile tech IPOs.

6. Drafting the DRHP and Navigating SEBI Approvals

The DRHP is the foundational public document that defines the company's story, risks, financials, governance, and strategy.

Critical elements in DRHP:

• Company overview and history
• Market opportunity analysis (substantiated with third-party data)
• Risk factors (must be comprehensive and specific)
• Management discussion and analysis (MD&A)
• Financial statements and auditor reports
• Use of proceeds breakdown

SEBI’s turnaround time for DRHP comments is typically 30–75 days, depending on complexity.

7. Marketing the IPO: The Roadshow

The roadshow phase is where founders and CFOs meet potential investors, explaining the company’s value proposition.

Must-do’s during roadshows:

• Consistent messaging between management
• Clear articulation of growth levers and profitability roadmap
• Transparent discussion of risks (no overhyping future projections)
• Engaging anchor investors early (for credibility)

Anchor investors like HDFC Mutual Fund, SBI MF, and international funds like Fidelity have played major roles in recent Indian startup IPOs.

8. Pricing and Listing

After gauging investor interest, pricing is finalized through a book-building process. Indian IPOs typically follow the 100% book-building route under SEBI regulations for companies with more than ₹100 crore post-issue market capitalization.

Final steps include:

• Allotment of shares
• Final RHP (Red Herring Prospectus) filing
• Listing on NSE and BSE (typically within 6 days of issue closure)

An IPO is not just a financing event; it is a transformation into a publicly accountable entity. Startups must prepare well in advance—often 12–18 months before the planned listing.

In today’s cautious funding environment, a successful IPO demands not just a compelling growth story but also operational excellence, governance maturity, and financial transparency. Founders who approach the IPO process strategically position their startups for sustainable public market success—and build enduring businesses beyond just the listing day pop.