Why this VC-funded startup chose to go public on a junior stock exchange

When venture capital funds shunned Delhi-based cloud computing firm E2E Networks Ltd, founder Tarun Dua had only one option left: tap into the public markets.

His punt on NSE Emerge, the National Stock Exchange's platform for small and medium enterprises, has now succeeded and will, hopefully, pave the way for many other VC-funded startups to explore the option.

The company's initial public offering, which did not have an anchor allotment, was subscribed 70 times as it received bids for nearly 270.84 million shares for the 3.86 million shares on offer, stock-exchange data showed at the end of bidding on Monday.

"There were apprehensions in the beginning. Hence, we went for a lower valuation than what we would have liked to," Dua told TechCircle. "In hindsight, we could have been more aggressive."

E2E, which is promoted by Dua and wife Srishti Baweja, sought a valuation of Rs 81.19 crore ($12.17 million) through the IPO by selling shares at Rs 57 apiece. The offering includes a fresh issue of shares and a secondary sale by the promoters, early-stage VC investor Blume Ventures and some other individuals. Blume is set to make stellar returns from its partial exit, VCCircle reported previously.

Dua also said that, while NSE Emerge was a tough choice, a small company would not have been visible in the broader market and so it made sense to list on the junior platform.

"We wanted to attract high-quality, long-term investors. There is a likelihood that such investors will take more effort to understand us and might be even the better-qualified investors for us." 

The IPO's success is in contrast to Dua's failed efforts to raise money from other VC funds, even through a few discussions came close to fruition. Dua said the amount of effort required to approach a VC is the same whether it is a small funding round or a big one. But the talks failed "probably because we never had a hockey stick kind of growth curve," he said.

Dua said the response from the public markets was encouraging and took him by surprise. "Since we are profitable, I knew that even if VCs don't find value, the public markets will. We had achieved high double-digit growth in revenue year after year," he said, adding that he knew that it was the right time for the IPO considering the bullish stock market sentiment.

The company reported a 37.5% jump in revenue from operations to Rs 29.3 crore for the year ended March 2017, up from Rs 21.4 crore a year ago, as it expanded its business.

E2E provides cloud infrastructure in India. This includes servers, storage, networking, virtualisation and other open-source software pieces. The company is likely to benefit from growth in the cloud services market in India, as cloud spending is projected to touch almost $2 billion by the end of 2020, the company said in its IPO filings.

While the IPO has succeeded, Dua is now getting ready for a bigger test--how the shares perform on the listing day and thereafter.

Dua admitted that he might not yet be emotionally ready for panic reactions that often happen in the market. "We are internalising the probable market reactions to small setbacks that the company might face in the future," he said. "We are all a little nervous."