Debate Surrounding Post-IPO Governance for Startups
- Variegated perspectives on investor exits.
- Mutual funds and venture capitalists express divergent views.
- Discussions on founders’ equity and public shareholding emerge.
India’s burgeoning stock landscape is currently witnessing a significant surge in substantial block trades, as initial venture capital and private equity stakeholders liquidate their holdings in firms they had previously endorsed prior to their initial public offerings (IPOs).
This wave of sell-offs has ignited contrasting opinions between mutual funds and venture capitalists. Fund managers are progressively positioning themselves as acquirers of these shares, while VCs maintain that divesting after a prolonged holding period is an inherent aspect of the investment lifecycle.
This discourse was spotlighted during the renowned Moneycontrol Startup Conclave 2026 in Bangalore. S. Naren, Chief Investment Officer at ICICI Prudential AMC, pointed out the evolving ownership dynamics as early investors opt to capitalize on their investments, whereas leading VCs underscored that such exits are a conventional facet of the investment process.
Naren articulated, “When private equity investors eventually divest, it often results in founders retaining only a nominal share, in stark contrast to traditional promoters. This scenario leaves behind a substantial public holding alongside noteworthy mutual fund investments.”
His remarks were made in light of a notable rise in secondary market transactions pertaining to publicly listed new-age enterprises.
According to data from Prime Database analyzed by Moneycontrol, block and bulk trades involving these firms surpassed ₹67,000 crore in 2026, with an astonishing 153 sell-side dealings amounting to approximately ₹67,170 crore recorded from January 1 to September 18.
The urgency to liquidate has been exacerbated by the expiration of post-IPO lock-in periods, thereby providing early investors a crucial opportunity to convert their long-held private stakes into liquid assets.
Increasingly, these shares are being absorbed by mutual funds and other institutional investors, thereby transitioning the ownership paradigm from early backers to constituents of the public market.
Naren posited that this transmutation could instigate a novel array of challenges, particularly once the original investors who supported the company through its private phase exit the scene.
“At that juncture, we have observed that publicly traded companies can falter, as independent directors are often required to act in a capacity akin to that of founders,” he further elucidated.
Venture Capitalists’ Perspective
In contrast, venture capitalists assert that the uptick in large block transactions stems from the protracted retention periods that define venture capital investment, rather than signaling a deficiency in the viability of publicly listed startups.
Prashanth Prakash, founding partner at Accel, contended that stakeholders cannot be reasonably expected to sustain their shareholdings indefinitely.
“VCs typically maintain investments for 12 to 13 years,” he remarked, adding that the ownership architecture is bound to evolve upon a company’s transition into the public domain, allowing for a diversified spectrum of shareholders.
Similarly, Mridul Arora, co-managing partner at Elevation Capital, highlighted the extended duration VCs remain invested.
“I urge observers to compare our average holding period in a firm to that of mutual funds. Our average investment horizon spans 10 to 12 years,” he asserted.
“While governance is imperative, there exists a significant disparity in how VCs’ roles and their holding durations are perceived,” he added.
Rahul Taneja, a partner at Lightspeed India, echoed this sentiment, stating that his firm’s average holding period approaches the ten-year mark.
“Our typical duration in companies exceeds nine years. Without adequate governance frameworks, such longevity in holding would be untenable. We have a fiduciary obligation to our limited partners,” Taneja emphasized.
This incipient debate arises as India’s innovative enterprises transition into a phase where the IPO increasingly serves as a liquidity milestone for early-stage investors rather than signifying the conclusion of their investment odyssey.
In numerous instances, mutual funds and institutional investors have emerged as purchasers of large blocks divested by initial backers.
For venture capitalists and private equity firms, these transactions represent a conduit for returning capital to their limited partners following extended holding periods in private entities.
For public market participants, they furnish access to firms previously available primarily through private avenues.
Consequently, there is a swift reshaping of the shareholder landscape within India’s new-age publicly listed companies, as founders and early investors gradually yield ground to a broader spectrum of institutional and public investors.
Source link: Moneycontrol.com.
