Freezing of Folios of physical shareholders... Last date for KYC is 30th September 2023... Act now Ref: SEBI Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/37


The Price of Going Public: SME IPO Costs Explained

The Price of Going Public: SME IPO Costs Explained

The Venture Billionaire’s Paradox

You know things are getting deliciously surreal in the Indian startup ecosystem when audacious founders start openly fantasizing about attaining “venture billionaire” status well before even remotely contemplating public market exits! A growing breed of elite startupper judos who’ve mastered the art of systematically unlocking exponential valuations from ultra-committed private backers round after round.

Except in their tortured philosophical paradox, that preciously asymmetric pre-IPO wealth creation gets instantly hit by the harsh reality of Indian public listing overheads the moment they do opt for that mythical opening bell ceremony. A cruel rite of passage where every last monetization advantage gets mercilessly shaved off in the process of going public!

I’m talking about the sweeping gamut of regulatory slugs, advisory tolls and compliance tariffs that can easily terminate double-digit percentages off any starry SME’s hard-won private valuations at listing time. Seemingly counterproductive financial attrition levied by gatekeepers of Indian capital markets that negates years of compounding ingenuity and fundraising hustle overnight.

Naturally, this dramatic reversal of unicorn fortunes has led to heated debates around whether the headache of tapping public markets is even worth it anymore for SMEs disrupting the future. Especially with successive private funding rounds getting bigger, deeper and staying open for longer than ever before these days.

But on the flip side, the tantalizing promise of stock exchange immortality, infinite growth runways and prestigious institutional clientele lures even the most certifiable anti-IPO maximalists towards seriously at least considering this compliance gauntlet run. Not to mention actually being able to start redeploying permanent equity currency for company-building at massive scale.

So where exactly is the judicious equilibrium point in this dilemma? What are the precise monetary and strategic implications of going public that tomorrow’s SME champions need to carefully weigh before unlocking those IPO floodgates? Time to don the unvarnished cost-benefit goggles and objectively deconstruct the trials facing every breakout venture looking to cement an immortal stock exchange legacy.

Institutionalizing Your Unicorn Dreams

Although there’s really no universally prescribed listing timeframe or stage when an SME must consider making its public debut, recent trends do reveal some recurring patterns. Most high-performing teams only seem to initiate IPO ponderings once they’ve already crossed some major private fund-raising milestones on multiple fronts.

We’re talking confirmed additions to the coveted Unicorn Club with billion-dollar-plus valuations already formally acknowledged. Having expanded into at least a couple of international markets with healthy operating footprints. $100 million ARR runrates with clear profitability trajectories in sight. And ideally, a high-growth rate consistently sustained anywhere north of 100% clip for multiple contiguous cycles.

Make no mistake though, even ticking these venture-scale checkboxes is far from a sure shot sign that it’s automatically IPO prime time yet. Rather, hitting those ambitious benchmarks tends to indicate an SME trailblazer has graduated into a whole different playing arena where tapping public currency is now an inevitability worth at least modeling out.

Because strip out the shiny milestone accomplishments, and the pragmatic truth is that going public essentially represents an unprecedented institutionalization event for most of these fledgeling teams. The rubicon moment where a rag-tag guerrilla force of mercenary technologists finally transmutes into an elite corporation governed by rigid structures, policies and eternal shareholder accountability.

A spectacular success story from the startup trenches for sure. But also a spectacular hassle fraught with minefields of unexpected obligations and overheads they’ll need to navigate moving forward. Not too dissimilar to an offbeat indie band finally inking those coveted major label record contracts, except with way more financial paperwork scars to show for it!

The Advisory Services Black Hole
For any self-respecting SME startup founder looking to make that admittedly transformative leap into institutionalized legitimacy though, the first crushing monetary rite of passage awaits right at the starting blocks – unfurling the fees demanded by professional listing advisors and consultants guiding this primetime debut.

It’s the kind of institutionally mandated cost that even seasoned startup scribes often underestimate the magnitude of. I’m talking guaranteed multi-million-rupee engagement quotes just for the privilege of having IPO Merchant Bankers take the wheel and drive this listing bus along its insanely regulated stop-start course. And that’s before even factoring recurring compliance overheads down the road!

Let’s start with the alpha dealmakers leading the IPO advisory charge – those all-powerful Category 1 Merchant Banking outfits permitted to directly underwrite public offerings under SEBI’s watchful gaze. For any reasonably sizable SME hoping to list over Rs. 250 crore ($30m) towards the upper end, these savvy Banker Badis will command north of 1% of total IPO fundraise size as their baseline “upfront advisory fee” before even picking up a briefcase.

Now I know what vous finance aristocracy out there might be incredulously squealing already – “How is barely 1% too much to pay for omitting decades worth of experiential juice into navigating these perilous IPO obstacle courses successfully??”

Except consider this: the typical SME disruptor on India’s startup highway optimizes every single rupee of private treasury to maximize creative problem solving and borderless growth runways, not advisory fiefdoms. So shelling out crores upon crores of precious operating capital just to underwrite banker wisdom tends to chaff at their very core entrepreneurial value systems!

That initial merchant banking depth charge seems like merely the tip of the iceberg too. Because any halfway coherent public listing process these days absolutely mandates layering on additional professional support pillars beyond just the lead bankers to comprehensively check all those regulatory boxes. We’re talking incrementally nickel-and-diming founders for specialized legal counsels, compliance vectoring, forensic accounting slip groups, and other establishment gospel bearers.

By the time an SME juggernaut like Delhivery factors in stacked engagement costs from international counsel to Ind-AS transitioning diligence and IPO grading formalities, the total pre-listing advisory fees alone could clear upwards of Rs. 40 crores! An utterly ludicrous overhead burden for any soonicorn graduating from an already obscenely capitalized private market.

The Compliance Haircut Phenomenon

As if being accosted by egregious professional advisory overheads wasn’t deterring enough, going public also legally binds SMEs into accepting permanent financial haircuts through a steady stream of recurring fees and obligatory provisions earmarked solely for fueling the establishment machinery’s upkeep.

Exhibit A: Those dastardly establishment linchpins called “listing fees”. An insidious annual levy mechanically deducted at source by the very stock exchanges profiting off these shiny new public listings in the first place! Sure, the slab quantum might seem negligible compared to the mega-crore advisory slugfest at first blush. As if an upfront Rs. 20 lakh for BSE/NSE approval filings is going to materially dent any self-respecting unicorn’s net worth.

But look deeper, and the rent-seeking dynamics unravel rather unattractively – initial listing fees are just gateway drugs designed to entrap SMEs into costlier exchange reign fees down the road. Those recurring line items designed to microfinance India’s stock cathedral complexes in perpetuity, scaling up aggressively alongside the ascendant free float market caps of their unicorn captives!

You don’t believe me? Fast forward just a handful of years after any SME’s shiny new public float listing – and suddenly they could already be encountering Rs. 5 crore-plus annual tribute payments just for the privilege of being hosted on those hallowed exchange terminals! A permanent equity dilutive haircut they’re legally mandated to keep enduring by these mercantile overlords, year after year, without any tangible utility beyond secure digital quote hallways.

Now once this rent extraction gestalt fully sinks in, it’s no surprise why many enterprising technopreneur outfits start questioning the unsustainable tax burdens of remaining listed on exchanges beyond just the inaugural hurrahs. Pay millions upon millions annually just to remain traded? Why don’t they voluntarily delist and redeploy all those fungible compliance savings into exponentially more productive growth channels for the business?

And yet, stubbornly remaining listed ends up being the only pragmatic path forward for any SME upstart hoping to break out as a legitimate establishment forever. Not unless they’re willing to sacrifice institutional legitimacy and trade liquidity premiums to retreat into opaque private obscurity once more.

But don’t worry, this annual recurring compliance burn barrel for stock cathedral admissions gets stoked by many more overheads beyond just rental exchange hosting fees. Ladies and gentlemen, welcome to the shadowy world of systemic Registrar & Transfer Agent costs!

For SMEs chronically executing secondary share issues and needing seamless updation of their convoluted shareholder trails, there’s no avoiding the mandatory brokerage “RPO” commissions to RTAs maintaining these depositories. Even a minor private placement or strategic allotment necessitates forking out 0.05% of total deal value to these record-keeping intermediary outfits!

And like all sinister rent-seekers worth their weight, India’s entrenched RTA oligopoly seems to have scientifically timed their fee inflation ramp to exploit the inevitable public listing milestone of an SME’s natural lifecycle too. Newest technology wonderkinds witnessing a 300% escalation of annual maintenance fees overnight once they transmute from unlisted “issuer company” to publicly-listed darlings!

Still not done enumerating the infinite money pits for newly-listed SMEs? What about systematically mandating independent directorship quotas, enlisting SEBI-blessed rating agencies, stock exchange press releases,newspaper advertisements and other creative compliance sinkhole mandates that gobble crores of productive engineering capital like Pacman on steroids?

But hey, at least SMEs with active acquisition strategies enabling creative corporate reorg possibilities have a real silver lining here: they can simply downstream these exorbitant compliance burdens onto the hapless subsidiaries and portfolio companies getting listed too! Just because one franchise entity has to legally shave of chunks of market cap to fuel the bureaucracy annually is no reason other outfits in its stable should escape the taxman’s dutiful pilfering too.

So let’s recap: before an ambitious SME founders coterie even cuts the ribbon on their long-awaited IPO party, they’ve already endured forking over major treasury chunks towards legalizing their public company ceremonial transition. Now their freshly-minted listing is instantly laden with recurring rental costs payable to entrenched capital markets intermediaries without gaining any tangible competitive advantage over unlisted peers.

And as if those overhead handicaps weren’t punitive enough of a haircut, wait till you hear about the compounding follow-up public issuance overheads for SMEs beyond initial IPOs! Cue the institutional sadism…

The Final Public Issuance Attrition

Look, let’s just cut straight to the chase here – any reasonably mature SME pioneer going public ultimately harbors ambitions way grander than just the one-off IPO liquidity event. What they’re really craving are permanent institutional access roads for an infinite array of follow-on public capital raise possibilities down the road.

The kind of frictionless issuance super-laning that’ll let them opportunistically tap public markets for fresh capital infusions to bankroll expansion binges, R&D moonshots and even transformative M&A escapades early and often. Complete freedom to unleash any audacious strategic roadmap without obsessing over dilutive term sheets or restrictive debt covenants through heavy institutional oversight.

The real kicker though? By deciding to embark on this utopian “access infinity” public capital runways quest in the first place, SMEs are now contractually obligating themselves to gracefully endure an infinite perpetual gauntlet of institutional apartheid all over again!

Each and every subsequent follow-on, QIP placement or rights issuance they pursue for growth gets smothered at birth by duplicative compliance tolls. We’re talking about fresh merchant banking mandates, investor roadshows, stacked legal fees, climbing offer documentation reams, ostentatious financial audits and more smothered in the kind of assembly line apathy only suited for mediocre industrial firms.

Think carefully here: do audacious unicorn technopreneurs filled to the brim with infinite BGMI-fueled ambition and creative drive truly deserve to get mercilessly hair-shaved by the same lumbering advisory complexes that cater to fossilized manufacturing incumbents issuing yearly buybacks on the side? Or are these capital gatekeepers perhaps simply institutionalized to cynically dragnet lofty outliers into their circular grind no matter the exponential cost extraction?

Just consider the inconvenient truth that the fattest IPO mandates routinely spawn the most obscenely bloated follow-on engagement structures as well. Especially in the case of formative SME issuance mills yet to prove their mettle as consistent institutional supplicants. Merchant banks are able to squeeze eye-wateringly egregious 4-5% underwriting fees over pedigreed founders for the privilege of any trace follow-on issuances.

And we’re not even dissecting the compounding institutional landlord toll booths awaiting gloriously down these endless public capital runways! SEBI filing feeds, exchange processing feeds, advertising costs, global roadshow ginmayosushi…the batteries never stop draining every time an ambitious SME attempts pivoting capital strategies to realize its next lofty growth summit.

So sure, on paper the eternal institutional liquidity libations beckon temptingly as premier compensations for an SME trailblazer finally cutting that prestigious IPO ribbon at long last. But the covert recurring overheads and intermediary anchoring obligations swiftly undermine any real liberation cred by imposing perpetual operating handicaps instead! A clever two-steps-forward, one-step-back public capital jig neither founders nor investors ever dared signing up for upfront.

The Alternative Financing Solution

Of course, penning these recurring IPO horror tales begets the obvious follow-up question: if going the primetime public route permanently condemns audacious SMEs to a lifetime of obligatory institutional overhead attrition regardless of their sincere growth intentions, what exactly are the alternative financing channels to sidestep the entire IPO ecosystem entirely?

After all, didn’t early unicorn waves themselves morph into unstoppable gravities by cleverly leveraging elite private capital infusions secured via bullet-proof stakeholder alignment? Tapping capital tycoons and family offices cut from similar visionary cloths instead?

On the surface, there’s no denying the cosmetic appeal of remaining perpetually private – no compliance line items to nickel-and-dime founders incessantly, no institutional middlemen extracting rent creatively, and no external oversight breathing down teams’ necks with suffocating transparency mandates. Just pure perma-growth thrust powered by “we’re all in this mission together” partnerships.

So why can’t the next wave of hundred-billion-rupee opportunity SMEs just keep pulling off the same trajectory? Keep leapfrogging audacious valuation summits by aligning with cosmopolitan stakeholders amenable to driving even bigger private capital reunions supporting their iconoclast missions?

Well, the bitter reality is that despite its undoubted splashiness, the private financing ethos eventually tends to encounter some fundamental mathematical and operational ceilings preventing infinite scale. Especially for self-anointed huntersmaxing intergalactic ambitions across multiple industry killing fields simultaneously!

Most obviously, big-brain investors, no matter how hyperwealthy, contain finite deployable reserves at any given time. So even with theoretical alignment on external stakeholder time horizons, there comes a point where the most voracious unicorn pioneers legitimately start draining their coffers dry and necessitating expansive institutional backfills.

Not to mention, relying exclusively on curated private ecosystems to incentivize liquid capital commitment also inhibits operationalizing outrageous remuneration currencies needed to attract apex talents away from the bottomless public markets’ institutional poaching vaults. You can cultivate iconoclast engineering forces carefully, but you still need to aggressively pay them!

The Infinite Liquidity Promise

But perhaps the biggest evolutionary bottleneck facing audacious SME trailblazers looking to statutorily supersize into multi-trillion-rupee perpetual growth vehicles is the fundamental lack of infinite liquidity promise in any closed private ecosystem.

See, part of what makes the tantalizing institutional public markets promise so alluring despite its myriad overhead haircuts is the utopian pledge of seamless capital markets permanence. An assurance that no matter how colossal a founder’s ambitions, they’ll always have frictionless access to oxygenated liquidity infusions to power their expeditionary forces across uncharted frontiers.

It’s that very same institutional permanence which allows visionary SMEs to chart multi-decade, multi-generational roadmaps for their ventures without fretting about funding tangents. An open spigot formation allowing fresh capital ammunition to be continually forged and redeployed against evolving battlefronts at light speeds, unrestricted by antiquated tour-of-duty financing obligations.

Such a profound liquidity enlightenment is virtually impossible in the private markets arena. No matter how astronomically valued a SME juggernaut may currently price itself, its stakeholder commitments and capital underwriting remits perpetually encounter hard investment horizon ceilings. Arbitrary quantitative restrictions imposed by the very funds and institutions financing these missions in the first place.

That intrinsic liquidity asphyxiation risk not only curtails the sheer scale at which audacious teams dare to dream, but comes pre-packaged with perpetual contingent liabilities around eventual stakeholder liquidation events. Abrupt sell-side elevations that trigger external governance deviations disrupting core focus areas, if not outright ownership transitions ceding control permanently.

So for the handful of SME starfleet pioneers who genuinely viewed an IPO as just the first existential frontier towards manifesting trillion-rupee valuations, those nagging regulatory gatekeeping costs certainly pale when juxtaposed against perpetual infinity upside. Especially when complemented by bespoke structuring levers eliminating future hassles, like:

– Permanent separation of voting and economic interests to insulate key decision deputies from fleeting stock picker dictations;

– Full embrace of future-ready digital securities exchanges and programmable corporate refinancing synthetics to automate fresh equity injections seamlessly;

– Implementation of blockchain-era authenticated governance rails optimizing voting procedures and eliminating institutional rent-seeking permanently;

The bottom line? For SME founders destined to charter sustained hyper-exponential growth pathways as market vanguards, the true price of going public can never just be evaluated through the archaic lens of traditional advisory tolls or regulatory gatekeeping hazes. An innovative class of Intergalactic SMEs occupying the upper stratospheres simply has to transcend conventional IPO myopia altogether.

So as the coveted Unicorn IPO express accelerates into unprecedented trillion-rupee territory, it’s really up to these pathfinders themselves to permanently collapse regressive frictions like advisory hazing, compliance haircuts and regulatory anchoring into that one-off existential surcharge for accessing infinite liquidity for all of time.

The IPO-sphere can either remain a narrow toll road for episodic fundraising millennia, or be completely reinvented into a futuristic omni-domain for perpetually manifesting unbounded capital and organization frontiers alike. May the most enterprisingly Intergalactic SMEs devoted to the latter cosmic cause keep boldly ratcheting up ambitions.

After all, it’s through pioneering such genuine trillion-rupee public capital stargates that we’ll keep expanding the very definition of entrepreneurial human potential. Because there’s nothing prohibitively expensive about accessing those boundless market-making frontiers once you zoom out far enough!

The Cosmic Cost-Benefit Equilibrium

At this point in our cerebral expedition unpacking the obligatory cost-benefit gymnastics motivating SME IPO rites of passage, I think it’s safe to postulate a few guiding principles:

First and foremost, any soonicorn founder still pondering going public solely from an immediate financial cost-benefit lens is probably constraining their cosmic ambition a tad too excessively. Because just like any frontier-oriented venture, there inevitably come crossroad moments where the true wealth creation unlocks are intergenerational, not immediate.

The option pricing of immortalizing a high-conviction SME through primetime public listings simply dwarfs any of those uppity advisory purchase prices or recursive compliance haircuts we enumerated earlier. What looks superficially like a frustrating sunk cost turns into glaringly discounted tuition for manifesting boundless permanent equity fuel reserves powering your most audacious wealth creation roadmaps.

However, the other inescapable learning from deconstructing this brain-numbing IPO cost circus seems to be that the very vehicles facilitating this cosmic journey are still hopelessly anchored to archaic industrial age paradigms. With way too many incumbent intermediaries, financial hitchhikers and pernicious rent-raptors stacking umpteen terminal toll booths along the hyper-condensed SME pathway to market-making glory.

Which is why any smart SME founder recognizing these limitations would be silly not to start proactively preparing the ground for an updated post-compliance capitalist playbook from the get-go. Using their hard-won advisory and regulatory battle scars to inscribe fairer, more frictionless IPO practices that permanently upend cost-inefficient industrial dogmas for good.

Those trail-blazing reforms could range from aggressively digitizing listing approval workflows with decentralized public blockchains to bootstrapping modern crypto-native exchanges designed for sophisticated digital securitization ab initio. Proliferation of liquidity protocols optimizing for instant dual listings and frictionless globalized capital flows. Even ambitious proposals around transitioning to renewable shareholder validation models enforced through balancer-based liquid governance.

What was initially envisioned as an esoteric billion-dollar IPO tollbooth could soon end up catalyzing a full-blown and well-overdue public capital markets renaissance. With enterprising SME pioneers leading the charge in re-architecting their infinite liquidity biospheres from first principles, once and for all.

Because at the end of the capitalist day, the true price of going public shouldn’t just encompass yet another costly ritual designed for episodic fundraises. It ought to really be an arena for collectively manifesting transgenerational liquidity promises that obliterate all industrial compliance boundaries holding back the most disruptive SME civilizations from blooming in full cosmic glory.

So while legacy overheads may temporarily crimp that existential metamorphosis phase for breakaway SME starfleet visionaries, staying maniacally focused on the highest perpetual liquidity frequencies across infinite playing horizons is what will steer them through every IPO toll road ahead triumphantly. The power of financial infinity always dwarfs ephemeral gatekeeping obligations imposed by short-term gravity wells.

Just ask the Interstellar SME Civilizations already seeding the cosmos with boundless permanent equity long after shaking off those primitive linear IPO shackles. Whatever its short-term monetary discomforts, that escape velocity catapult sure seems worth pursuing relentlessly!

Previous Post
Newer Post