It Is Not Good To Take IPOs As Surrogate For Next Round Of Financing, Says Narayana Murthy

Murthy says that it is not a good thing because IPOs comes with huge responsibilities and startup founders may face pressure from venture capitalists to succeed as early as possible

By
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Narayana Murthy, Indian billionaire and founder of Infosys, on Friday said, Initial Public Offerings have been regarded as a surrogate for the next round of financing by startups and this is not a good thing. He was speaking at the India Global Innovation Connect, a global conference on startups.

Narayana Murthy twitter handle

"IPOs have been taken as the surrogate for the next financial round and it is not good as it comes with tremendous responsibility. There are so many people who have very little money and they have put faith in us. It is very important for us to give them a suitable return. But today the entrepreneurs are being in a jam with pressure from venture capitalists and looking at IPOs as the next level of financial round," said Murthy in a statement, while speaking about the discussion he and another co-founder of Infosys had before going for the IT major's Initial Public Offering.

"Investors always expect the earnings or stock price to keep going up. Having an IPO is not fun. Think of the poorest retail investor before deciding on an IPO as you have the responsibility to redeem your pledge by giving them the returns," he further added in the statement.

The India Global Innovation Connect, held in Bengaluru, was a two-day annual meeting to foster and promote technological innovation in India by discussing the issues and policies involved, identifying the openings and challenges brought by disruptive technologies, while creating a channel of interaction between technology developers and business end-users.

Commenting on the over estimation of markets, he said, "We have traditionally or by habit, overestimated the markets and market size. Also, we probably don't have good market research companies that can give us accurate estimate of the market opportunity. This results in stagnated revenues while costs keep inching up and that disadvantage has added to the woes of the startup industry."

Murthy also said, "Transparency is not about disclosing good news, but it is about revealing the bad news. So, it is always better to disclose the bad news about a company early and proactively."

Narayana Murthy, also known as the father of the Indian IT sector, established Infosys Limited, an Indian multinational information technology company. According to reports, Infosys is the second-largest Indian IT company in 2020 by the revenue figures. It also became the fourth Indian company to cross $100 billion in market capitalization.