'Set right expectations': Zerodha's Nithin Kamath explains how start-ups can approach IPOs

The past few months have seen conversations around initial public offering offerings (IPOs) of start-ups garnering greater momentum. Entrepreneur and investor Nithin Kamath shared his thoughts on start-ups making their stock market debut in a post on the professional networking platform, LinkedIn on Thursday. 
 
Kamath rolled out some advice for B2C businesses and revealed, “Setting the right expectations, being transparent, & not overselling are great ways to reduce the volatility of the stock price pre & post-IPO.”
 

The Zerodha founder also shared that start-ups, especially the B2C (Business-to-Consumer) ones, should “create wealth with the least volatility” in order to do well. 
 
He also wrote, “Sharp falls tend to spook retail investors; they panic and exit at lows. So, slow compounding for the long term, not max valuation in the short term. That means underselling and over-delivering, not the other way around.”
 
According to him, the start-ups that have taken the IPO plunge have missed a major opportunity to turn millions of retail shareholders into their brand ambassadors with the power of social media. 
 
“From the time a founder raises money from VCs and PE, they are primed to think about maximizing valuations. This means building a narrative that can price in the best-case outcome for the business. But what's needed to do well as a listed business is different,” the entrepreneur noted.
 
Kamath’s post comes against the backdrop of several start-ups withdrawing their draft red-herring prospectus (DRHP). From boAt to Snapdeal, several companies delayed their IPO plans in 2022. 
 
Even personal care brand Mamaearth, whose parent company, Honasa Consumer Private Limited, filed its DRHP last week, attracted a lot of criticism for its IPO being overvalued. However, Ghazal Alagh, the company’s co-founder later issued a clarification stating that “there is no mention of valuation” in the DRHP.
 
“Valuation discovery is a process which will take place over time as we get into deeper conversations with investor community” she wrote on Twitter. 
 
Kamath is known to share his thoughts on various themes ranging from investing to IPOs. Recently, he took to social media platform, Twitter, to express the importance of teaching finance basics in school. "I still remember the formula for the area of a circle or that CH3OH is Methanol from school. Similarly, If we taught finance basics in school, like why start investing early, inflation, insurance, retirement planning, etc. These lessons will be helpful throughout life," he tweeted.
 
Nithin and his brother, Nikhil Kamath (Co-founder of Zerodha) besides being among the richest entrepreneurs in the country, are also among India’s top 10 philanthropists in personal capacity. Their donations jumped 308 per cent to reach Rs 100 crore in FY22, making them the ninth-largest individual givers in India, according to the EdelGive Hurun Philanthropy List 2022.