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Tech unicorns expected to go public with eyes wide open
Start-ups looking to go public need to show a quick path to profitability and lower their expectations for valuation to attract investor interest, analysts say.
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Indonesia's six unicorns shown on a screen on Aug. 3, 2021. The six are ride-hailing company Gojek, e-wallet OVO, online travel agency Traveloka, logistics company J&T Express and e-commerce platforms Tokopedia and Bukalapak. (JP/Norman Harsono)
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dozen or so Indonesian tech start-ups are expected to go public by 2027 thanks to improved profitability and early investors' desire to cash out, according to new research.
However, analysts say investors will be more selective in the current high-interest-rate environment, meaning start-up owners looking for an initial public offering (IPO) may need to lower their valuation expectations and show a path to profitability of no more than six or 12 months to attract buyers.
According to research from management consulting firm Redseer, there were 42 unicorns (start-ups with a valuation of US$1 billion or more) and 150 “soonicorns” (start-ups with a valuation close to $1 billion) in Southeast Asia, as of last year.
Nineteen of the unicorns booked positive earnings before interest, taxes, depreciation and amortization (EBITDA), while 16 others had at least narrowed their losses. The rest saw their losses widening with no active rectification measures, according to Redseer's study, which has not been published yet.
"When we look back at 2019, there were only 14 percent profitable unicorn companies, and now we are looking at almost 45 percent. That is a very encouraging trend. The healthy pipeline of unicorns should be headed toward IPO, [that] is the sense we are getting," Redseer Southeast Asia partner Roshan Raj told The Jakarta Post on Oct. 18.
Profitability aside, Roshan explained that most of those unicorns and soonicorns had gained that status around 2017. They were backed by private investors, whose funds typically would be looking for an exit after seven to 10 years, he added.
"On a very comfortable level, we think 29 companies should be headed for IPO by 2027, with another 11 companies [that] are somewhere in the gray zone in terms of their business size and profitability [also eyeing the public market]," Roshan stated.
