“Current shareholders should not feel short-changed at the end. If you achieved a rate of 100 percent, you would have left too much on the table,” he wrote, before adding that institutional investors should also “feel good about the aftermarket, with the shares never falling below the issue price.”
The email, revealed in Megha Vishwanath’s new book ‘Unseen: The Untold Story of Deepinder Goyal and the Making of Zomato’, exposes not only the inner workings of IPO pricing but also the philosophical tension underlying taking a fast-growing company public: how to balance the founder’s ambition, institutional appetite, retail sentiment and long-term reputation term balancing in a single pricing decision.
Bikhchandani’s warning contained a simple truth: hitting retail investors was “bad karma” and an underwater debut would be a failure in public perception.
Three years later, with multiple new-age tech listings trading below their issue prices, that caution reads less like advice and more like prophecy.
Bikhchandani’s framework focused on three constituencies, each with competing interests. Current shareholders needed adequate returns without leaving excessive value on the table. A 100% pop on day one, he warned, would signal that “you could have gotten twice as much money for the same dilution or the same money for half the dilution,” effectively shortchanging existing investors. Most expensive Nifty share ever? Eternal at 455 PE challenges you to doubt the hype. Incoming institutional investors, meanwhile, needed confidence that their investments would not fall immediately. “They will feel good if there is a sustained 25 to 30 percent upside in the aftermarket, while the stock will not go even a day below the issue price,” he wrote, acknowledging that this was “a difficult feat to fine-tune and if you achieve it, it will only be a fluke.”
But it was his analysis of private investors that was the sharpest. “Retail investors get hurt when an IPO goes underwater in the aftermarket. If retail investors in India get hurt, it’s bad karma. The media goes after you. Your customers come after you, the ones who invested in the IPO, and you get trolled on Twitter.”
His assessment was stark: “An underwater IPO in popular discourse is a failed IPO. The IPO is the biggest PR opportunity of this company’s life. Let’s not misunderstand.”
The banking dilemma
Bikhchandani spent a lot of time explaining the structural dynamics that drive IPO pricing and why founders shouldn’t completely trust their investment bankers on valuation calls.
“Remember, a company only does an IPO once in its life. In that respect, you are a one-time customer,” he explained. “However, the investors are their eternal customers. They have to come back to them every day with more deals and if the investor is mad at them for selling them an IPO that then went underwater, they are not going to be happy.”
The implication was clear: bankers’ incentives are aimed at pleasing buy-side institutions, rather than maximizing the value of issuers. “In IB terminology (and you know this firsthand, Akshant) they call you the company and they call investors customers. In that sense, you are not the customer, you are the product being sold.”
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His advice: “You can put pressure on the bankers’ valuation and try to estimate at what price level the pushback will come and for what reason: is the pushback for real reasons (the IPO is actually at risk of going underwater after listing or perhaps being signed) or is it because they want to keep investors happy?”
The Info Edge precedent
To illustrate his point, Bikhchandani talked about Info Edge’s own 2006 listing, which showed record oversubscription and a near 100% first-day pop. “We felt great about the oversubscription… and all the hosannas showered on us by investors, media and the public,” he wrote. “However, we were also aware that we probably left too much money on the table.”
The vindication came two years later during the 2008 global financial crisis, when Info Edge shares bottomed out at 25% of their peak but remained above the IPO price. “Of the 40 to 50 companies that went public around that time, only two never went below their IPO price; we were one,” Bikhchandani noted. “And we were proud that even in the worst of times, we hadn’t sold shares to anyone where buyers at that price were losing money.”
Through fifteen years and two subsequent qualified institutional placements, Info Edge has maintained that record. “No investor has ever lost money on the shares we have sold. This is a good reputation among investors.”
Why it still matters
Zomato eventually priced its IPO at ₹76 per share, which raised ₹9,375 crore on India’s largest new-age tech listing at the time. The stock opened at ₹116, up 53%, before embarking on a volatile stretch that saw it fall below its issue price during the 2022 tech sell-off, only to recover significantly since then.
Bikhchandani’s framework anticipated exactly this dynamic. His emphasis on conservative pricing, retail sentiment and long-term reputation counterbalances the growth-at-any-cost ethos that characterized many 2021-era listings. With several high-profile IPOs still trading below issue price, his caution about the “bad karma” of underwater retail investors seems prescient.
The closing lines of the email summarize the existential shift that comes with an IPO: “Deeper, in the beginning the company was yours. When you have co-founders, employees and investors, then the company is no longer just yours (even though you might have thought otherwise!!!). Now you belong to the company. Welcome to the world of publicly traded companies.”
(Megha Vishwanath’s book ‘Unseen’ on the making of Zomato is published by Penguin and hits stores this month)
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