Foundamental | Markets Meet Mindset ⎟ Indian IPO Power Signals Major Shift In Global Markets

Markets Meet Mindset ⎟ Indian IPO Power Signals Major Shift In Global Markets

November 29, 2024

As Western markets wobble, India's explosive growth and IPO surge signals a tectonic shift in global tech. Deep dive into what this means for construction tech and the future of venture capital.

Patric Hellermann

Shub Bhattacharya

Markets Meet Mindset ⎟ Indian IPO Power Signals Major Shift In Global Markets

tl;dr

India emerges as global IPO powerhouse with remarkable company growth rates

Construction tech in India moves from marketplaces to AI-driven solutions

BlackBuck IPO signals strong future for B2B marketplaces

Western IPO window opening with mixed signals

VC returns hit concerning lows despite tech boom

LP allocation strategies need fundamental rethinking

There's been quite a few applications of AI being applied to traditional industries like cement and manufacturing, which also are showing very promising signs of scale and profitability

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India emerges as global IPO powerhouse with remarkable company growth rates

The Indian market is showing unprecedented strength in company growth and IPO activity. A recent study of the five largest economies revealed striking data about companies growing revenues at over 20% annually for 20 years straight. While Germany showed zero such companies and Japan had just two, China managed five, and the US had 35. India, however, dominated with 156 companies achieving this remarkable growth rate.

This translates to companies growing at least 38 times over two decades, showcasing the fundamental strength of India's economy. What's particularly interesting is that this growth spans across sectors, with a significant number of companies in industrial, manufacturing, and building materials sectors.

Currently, India is experiencing a sustained bull rally that's unique in its history - it's primarily driven by domestic retail investors rather than foreign institutional investors. This shift indicates growing domestic economic strength and self-confidence. The Swiggy IPO, currently the largest tech IPO globally this year, exemplifies this trend.

Construction tech in India moves from marketplaces to AI-driven solutions

India's construction technology landscape is evolving beyond traditional marketplace models. While "outcome as a service" solutions through marketplaces and supply chain improvements continue to dominate, we're seeing emergence of sophisticated AI applications in traditional industries like cement and manufacturing.

This evolution reflects a natural progression. The widespread adoption of B2B marketplaces has raised industry standards and customer expectations. Traditional industry incumbents now understand and demand higher quality solutions, creating pull for next-generation technologies beyond supply chain operations.

However, this transition isn't happening overnight. While the five-year outlook remains bullish, immediate large-scale adoption faces challenges. The market appears to be in a phase where successful marketplace implementations are laying groundwork for more advanced technological solutions.

BlackBuck IPO signals strong future for B2B marketplaces

BlackBuck's successful IPO at a $570 million valuation marks a significant milestone for B2B marketplaces globally. This achievement is particularly impressive considering the challenging market conditions in logistics, where freight rates dropped 60-70% over the past two years.

The success required careful financial management, including restructuring, cash management, and margin optimization. BlackBuck had to significantly increase its shipping volume to compensate for rate decreases, demonstrating strong operational capabilities.

This IPO sends a powerful signal to B2B marketplace investors worldwide. It's especially noteworthy given the contrast with Convoy in the US - once called the "BlackBuck of America" - which ultimately failed. This comparison highlights India's strength in developing sustainable B2B marketplace models.

Western IPO window opening with mixed signals

The Western IPO market shows signs of revival, with ServiceTitan's recent S1 filing leading the way. While not strictly construction tech, ServiceTitan's tradespeople-focused software represents an adjacent market. The company's metrics, while solid, aren't exceptional by public market standards - AR per FTE around $270,000 and 20-25% year-over-year ARR growth at $700 million scale.

Analysts project a 10-12x ARR multiple, above the current public market median of 7x for similar companies. This premium valuation, despite moderate metrics, suggests strong market appetite for new tech IPOs.

Other significant companies like Klarna have also announced IPO intentions, indicating a broader opening of the IPO window in Western markets. This could lead to increased IPO activity over the next 6-12 months.

VC returns hit concerning lows despite tech boom

Recent data from PitchBook reveals troubling trends in venture capital returns. The absolute amount of distributions to investors in 2023 was the lowest since 2011, approximately $26 billion. More concerning, the delta between contributions and distributions reached its lowest point in 25 years.

This occurred during the AI boom, suggesting continued high investment levels despite reduced exits. The situation particularly affects growth-stage investments from 2020-2021, where shorter exit timeframes were expected. Many funds from these vintages might struggle to return 1x capital.

The timing of markdowns has masked some issues, with some GPs being less proactive about revaluations. This has led to delayed recognition of portfolio problems by Limited Partners.

LP allocation strategies need fundamental rethinking

Current LP allocation strategies often show systematic flaws. Many institutional investors require minimum check sizes of $30-50 million while maintaining maximum ownership percentage restrictions. This effectively limits them to mega-funds, potentially missing better-performing smaller funds.

Historical data shows venture capital returns are highly skewed, with only the top 10-20% of funds returning principal. This suggests 80-90% of VC investments are poorly allocated. The problem sometimes stems from too much capital chasing too few opportunities.

Fund size influences returns significantly. Data suggests emerging managers and sub-$250 million funds often outperform larger funds. Yet, institutional allocation requirements and signaling effects continue driving capital toward mega-funds, even when returns might be suboptimal.