In what could be seen as rare incidence and at the same time a milestone achievement for Indian startup ecosystem, a Delhi-NCR based cloud computing startup E2E Networks is all set to get listed on NSE Emerge, the stock exchange’s platform for small and medium businesses (SMB).
E2E Networks Ltd is largely a bootstrapped startup that counts Blume Ventures as one of its few major investors. The startup’s IPO will mark a rare public exit for India’s fledgling startup ecosystem. The listing will go live in coming weeks.
Moreover, E2E Networks going public is a milestone achieved by the Indian startup ecosystem as earlier going public is restricted to only big companies, that’s too on the main exchanges — NSE and BSE. Additionally, the listing will set an examples for other startups in India for raising capital as a different funding option, which was earlier limited to only venture capital and angel funding routes.
The IPO of E2E networks, which is selling less than a third of its shares, is valued at roughly Rs.22 crore, with an expected post-money valuation of roughly Rs.85 crore. The face value of the equity shares is Rs.10 apiece and the offer has been priced Rs.57 a share.
Post listing, Blume Ventures, along with other major investors, will continue to hold a stake in the startup, and will sell-out about a third of its stake in E2E networks.
As per the latest stock exchange data, E2E IPO received bids for 1.47 million shares against the 3.86 million shares on offer. The book, which does not have an anchor allotment, was subscribed 38% at the end of day one.
It is also to be noted that the public share marks the climactic point of a nearly decade-year-old E2E, which was valued at $500,000 about seven years ago and is one of the few examples of a low cash-burn, profitable start-up business — a rarity at a time when the country’s most valuable startups such as Flipkart and Ola are nowhere close to profitability and are reporting hundreds of crores of losses every year.
Through the IPO, E2E is eyeing a valuation of $12.17 million (Rs 81.19 crore) through the IPO.
Journey of E2E Networks & Tarun Dua
Founded in 2008 by Tarun Dua, E2E Networks has been into the business of providing Low latency Dedicated Servers and VPS Servers in India since 2009. The company help architect customers’ production site at the data-center in a cost effective manner, thus lowering risk and investment drastically, including strategies and managed services help for implementing the most suitable cloud architecture based on public, private or hybrid cloud platforms for your web facing or enterprise applications.
E2E started out in November 2009 from seed capital of $40,000 from its founder Tarun. In 2013, the company raised $56,200 from Blume Ventures and Freeman Murray, and then in 2013 it again raised seed capital of $80,405 from Blume Ventures.
In a statement to Live Mint, Karthik Reddy, managing partner at Blume Ventures, said, “Tarun was one of those founders who (built a company that) was cash-flow break-even then and is cash-flow break-even now”.
“It pays to build profitable businesses, as opposed to cash-burn, high-growth businesses only in this country, as long as you have the conviction to build as a public company, which is usually a 5-10 year journey. Then it is a good avenue to tap and makes it attractive for everybody including founders, investors, employees,” he said.
Reddy also explained that why Blume Ventures decided to back E2E back in 2011, he said, “We basically thought there was a gap in the market—the market is not uniform on the hosting side. Unlike the behemoths in the data-centre space and the hosting space, who also tend to own data centres like Amazon and Microsoft Azure on one extreme, and the original data-centre businesses like NetMagic, Tarun had figured out a way to build a virtual layer on top of that— basically lease out the physical infrastructure and build a virtual layer, with just the machines being owned by him.”.
“When we bet on E2E, we thought that space was open. Unfortunately and tragically for us, the VCs (venture capitalists) back then did not believe that a little start-up could threaten that kind of empire-building on both sides, sitting in the middle with a virtual play and actually build something meaningful. This is unfortunate, but those were the headwinds we faced when we went into the venture capital ecosystem,” he added.
What Other Startups Should See
First thing to learn from E2E — A startup can break even without thinking much about “raising funds”, and Secondly, startups, apart from age-old private equity funding option, can now raise funds by listing on exchange platforms made for SMEs/startups, provided they satisfy the eligibility requirements of respective exchange platforms.
As explained in our article in March, market regulator Securities and Exchange Board of India (Sebi) has allowed startups to list on the small and medium enterprises (SME) platform of the stock exchanges as an opportunity to raise capital apart from usual private equity and angel investment funding route.
SME exchange is a stock exchange dedicated for trading the shares of SMEs who, otherwise, find it difficult to get listed in the main exchanges — NSE and BSE, in India. The concept originated from the difficulties faced by SMEs in gaining visibility or attracting sufficient trading volumes when listed along with other stocks in the main exchanges. BSE has named its SME platform as BSESME while NSE has named it as NSE Emerge.
The idea behind to get listed on SME exchanges like NSE Emerge or BSESME is to provide capital raising opportunities to small and mid level startups who cannot list on the main board for the higher compliance norms.
Eligibility for Startups To Get Listed
A startup/SME listing on the startup platform can have a maximum net-worth of Rs 10 crore to qualify for an SME listing. However startups who have raised money from private equity (PE) investors have much higher net-worth to qualify for the platform.
Companies must not exceed Rs 100 crore in annual revenue and about one-fourth of the pre-issue share compulsory held by select institutional investors for listing on NSE Emerge.
So, what other startups in India could see in E2E listing is — a viable option to raise capital, and even investors would also have greater chance to exit early.
In E2E case, Blume Ventures will see a second major exit in less than three months, as few weeks back Blume-backed Minjar Cloud Solutions was acquired by Silicon Valley-based cloud computing firm Nutanix.
Top Image – Tarun Dua | Picture via E2E Networks @facebook