Looking to Invest in Upcoming IPOs? Read this...

I hope you had a great festive season.

What I'm going to share next is not worth celebration.

As per Tracxn, the funding in Indian start-ups has declined 80% in the quarter ended September 2022. On a sequential basis, it is down 57%.

How the times have changed. Last year money was literally being printed and sloshed around, it seemed like a party with no end.

Youngsters with barely a year of experience were spoilt for choices for their next job, being lured by ESOPs, joining bonuses and huge increments by loss making ventures.

But the tide has turned.

The tech boom is far from dying, but has certainly crashed, as you can see in the chart below.

This is the trajectory of NASDAQ index.

The meltdown in tech stocks is bigger than Covid crash. At this rate, it won't be long before it beats the losses in the great financial crisis last decade.

Quite a few of my cousins and friends were swept off their feet in the post pandemic tech boom, buying into the famous FAANG. They hoped to ride multibagger stocks. They're now staring at a loss of 40%+.

Thankfully, these businesses are past the stage where their survival could be questioned. The IPO investors in new age companies like Zomato, Car Trade, and Delhivery don't even have that comfort.

It was not just the retail investors, but bigger players too - institutions and mutual funds, that have lost money on these loss making companies.

I hope this crash will not go waste, that the big investors will be held accountable and will appreciate the value of margin of safety in valuations and sustainability - basics of the share market.

As for the retail investors, I hope this will make them realise that coat-tailing even seasoned investors and following bulk trades for taking investing decisions will not offer any safety net.

Afterall, they are humans - as susceptible to FOMO as a common investor.

Mark Cuban, the famous US Shark Tank judge, has been with the show since inception. He was honest enough to admit this. In a shocking and embarrassing confession on the Full Send Podcast, he revealed he has not made any profits from investments made on the show.

That could be US$ 20 m - invested across 85 companies across 111 episodes, gone down the drain. That's disappointing.

Cuban is an entrepreneur with a net worth of US$ 4.7 bn. He wears multiple hats of investor, movie producer, author, famous TV personality (thanks to his popularity on Shark Tank), and with money in multiple ventures - from sports to cryptos, pharma and so on,

There's more...

He counts his investment in 'Breathometer' the worst of all. To be sure, Mark was not the only one smitten. All five judges invested in the venture. While Mr Cuban still likes product, he is not happy about the founder partying on fancy islands, under the garb of business networking.

As I shared with my subscribers recently, even the savviest of investors are not immune to the seduction of great storytelling (whether or not with solid foundation), the action itch, and the fear of missing out.

What's happening in the tech space has three key takeaways:

First - Do not follow big investors blindly.

There is no such thing as Midas touch, be it Cuban or Jhunjhunwala. Side car investing can take you only so far. By the time you know what smart money is chasing, the price has already gone up. And value, if any, comes down to that extent.

The odds are stacked against you at the time of exit too. Big investors exit first. By the time you know this and follow, the prices have already crashed.

You can always learn from the mistakes and experience of others. But when selecting stocks or investing in businesses, there is no substitute for research and conviction developed with deep study. While Cuban can afford the losses he has made, most investors can't.

Second - Do not equate investment with drama. The former is not for entertainment.

Real investing helps you make sustainable gains and probably should feel boring if you are doing it right.

It includes long periods of waiting before you find the perfect pitch and ball to swing the bat on. And even then, it's likely to involve a long waiting period before you get to see respectable returns.

Lastly, you will not hit boundaries every time you swing a bat. But if you do have the temperament to stay in the game for long, a few will be enough to win, and to beat the market returns by a wide margin.

Third, and most important...

For unproven businesses, a product or service with great potential is not enough. You need to give extra weightage to the quality of management and founders. You must spend enough time with them to assess their vision, thought process, and execution abilities.

Discover: How to Grow Your Wealth in a Stress-Free Way

After a muted 2022, the IPO wave is gaining momentum.

As per Business Standard, 64 IPOs worth over Rs 940 bn have received the approval of market regulator to raise funds. 45 companies, worth Rs 650 bn, are in the pipeline waiting approval. Four IPOs are aiming to raise over Rs 45 bn next week.

Beware the power of narrative, the trap of grey market premiums, and the lure of listing gains, as many of these unproven businesses are pitched to you by Mr Market.

To know more about whether the tech IPOs would be worth investing in, watch my video below.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure