India’s startup ecosystem has been a beacon of innovation, with thousands of companies vying to disrupt markets and attract investor confidence. However, not every startup’s journey to the public markets ends in triumph. Initial Public Offerings (IPOs) are often seen as a milestone of success, but for some Indian startups, they have marked the beginning of a downward spiral. Below, we explore five high-profile startup IPO failures in India, dissecting the reasons behind their catastrophic collapses and the lessons they offer for the future.
Table of Contents
1. Paytm (One97 Communications) – A Valuation Bubble Bursts
Paytm, India’s leading digital payments platform, went public in November 2021 with much fanfare. Valued at ₹1.39 lakh crore (approximately $18.7 billion), its IPO was one of the largest in Indian history. However, within months, Paytm’s stock plummeted by over 70%, leaving investors reeling.
What Went Wrong?
Paytm’s failure stemmed from an overinflated valuation driven by hype rather than fundamentals. The company’s business model, heavily reliant on transaction fees in a highly competitive fintech space, struggled to deliver sustainable profits. Regulatory challenges, including scrutiny from the Reserve Bank of India (RBI) over its banking arm, Paytm Payments Bank, added fuel to the fire. The lack of a clear path to profitability and aggressive expansion into unrelated verticals like insurance and wealth management diluted its focus. Investors, initially drawn by Paytm’s brand, soon realized the disconnect between its market cap and revenue potential, leading to a massive sell-off.
Lesson Learned: Overambitious valuations without robust financials can erode investor trust. Startups must prioritize sustainable growth over market hype to succeed post-IPO.
2. Zomato – A Hungry Market’s Reality Check
Zomato, the food delivery giant, debuted on the Indian stock exchanges in July 2021, raising ₹9,375 crore at a valuation of ₹64,365 crore. While its IPO was oversubscribed, the stock faced volatility, dipping significantly within a year due to concerns over profitability and market dynamics.
What Went Wrong?
Zomato’s IPO came at a time when food delivery was booming due to pandemic-driven demand. However, post-IPO, the company faced intense competition from Swiggy and rising operational costs. Its aggressive push into quick commerce (Blinkit) strained finances, as the segment burned cash without immediate returns. Additionally, Zomato’s reliance on deep discounts to retain customers eroded margins. Investors grew wary of the company’s inability to balance growth and profitability, leading to a sharp correction in its stock price.
Lesson Learned: Startups must demonstrate a clear strategy for profitability, especially in capital-intensive sectors. Over-reliance on discounts and unproven business models can spook investors.
3. Nykaa (FSN E-Commerce Ventures) – Beauty Fades Under Scrutiny
Nykaa, India’s leading beauty e-commerce platform, went public in November 2021, raising ₹5,352 crore at a valuation of ₹52,574 crore. Initially, its stock soared, but within a year, it lost nearly half its value as cracks in its business model surfaced.
What Went Wrong?
Nykaa’s IPO was buoyed by its strong brand and growing beauty market, but post-listing challenges exposed vulnerabilities. The company’s heavy reliance on private-label products led to inventory pile-ups and supply chain issues. Intense competition from offline retailers and new e-commerce players eroded its market share. Moreover, Nykaa’s foray into fashion (Nykaa Fashion) failed to gain traction, draining resources. Investors began questioning its high price-to-earnings ratio, which was unsustainable given slowing growth and rising costs.
Lesson Learned: Diversification into unrelated verticals without a strong foundation can dilute a startup’s core strengths. Transparency in financial metrics is crucial to maintain investor confidence.
4. Delhivery – Logistics Dreams Derailed
Delhivery, a logistics and supply chain startup, went public in May 2022, raising ₹5,235 crore at a valuation of ₹35,000 crore. Despite high expectations, its stock fell by over 40% within months, reflecting investor skepticism about its growth trajectory.
What Went Wrong?
Delhivery’s IPO was launched amid a global tech stock downturn, which dampened investor sentiment. The company’s capital-intensive business model, requiring significant investments in infrastructure and technology, struggled to deliver consistent profits. Rising fuel costs and regulatory hurdles in India’s logistics sector further squeezed margins. Additionally, Delhivery’s ambitious expansion into drone delivery and international markets stretched its resources thin. The market’s realization that profitability was a distant goal led to a sharp decline in its share price.
Lesson Learned: Timing an IPO during unfavorable market conditions can amplify risks. Startups in capital-heavy industries must showcase operational efficiency to win investor trust.
5. OYO Rooms – A Hospitality House of Cards
OYO Rooms, the budget hospitality chain, aimed for a blockbuster IPO in 2022, targeting a valuation of ₹66,000 crore. However, its IPO plans were repeatedly delayed and scaled back, and when it finally listed, the stock underperformed, losing significant value within months.
What Went Wrong?
OYO’s IPO debacle was rooted in its chaotic business model and governance issues. The company’s aggressive global expansion led to massive losses, with unpaid dues to hotel partners sparking lawsuits and reputational damage. Regulatory scrutiny over its accounting practices and concerns about data privacy further eroded investor confidence. OYO’s reliance on a franchise-based model, coupled with poor customer experiences due to inconsistent quality, made it difficult to justify its lofty valuation. The IPO’s lukewarm reception highlighted the market’s distrust in OYO’s ability to turn profitable.
Lesson Learned: Governance and operational transparency are non-negotiable for public market success. Startups must address stakeholder concerns, including those of partners and customers, before going public.
Broader Implications for India’s Startup Ecosystem
These IPO failures reveal systemic challenges in India’s startup landscape. First, the pressure to scale rapidly often leads startups to prioritize growth over profitability, creating unsustainable business models. Second, regulatory complexities in India, from RBI guidelines for fintechs to tax policies for e-commerce, can blindside companies unprepared for compliance. Third, global market volatility, as seen during 2021-2022, can exacerbate risks for startups entering public markets at inopportune times.
Moreover, these failures underscore the importance of investor education. Retail investors, lured by the hype of “unicorn” startups, often overlook financial fundamentals, leading to panic selling when reality sets in. For startups, the lesson is clear: a successful IPO requires not just a compelling narrative but also a robust financial foundation and a clear path to profitability.
The Road Ahead
As India’s startup ecosystem matures, founders and investors must learn from these high-profile failures. Startups preparing for IPOs should focus on:
- Sustainable Business Models: Prioritize profitability and operational efficiency over aggressive expansion.
- Transparent Governance: Address regulatory and stakeholder concerns proactively to build trust.
- Realistic Valuations: Avoid inflated valuations that cannot be justified by financial performance.
- Market Timing: Launch IPOs during stable market conditions to maximize investor confidence.
- Customer-Centric Growth: Ensure core offerings remain strong before diversifying into new verticals.
India’s startup scene remains vibrant, with companies like Swiggy and Ola Electric eyeing public listings. However, the cautionary tales of Paytm, Zomato, Nykaa, Delhivery, and OYO serve as stark reminders that the road to IPO success is fraught with challenges. By learning from these catastrophic collapses, India’s next wave of startups can chart a more resilient path to public market triumph.
also read : Swiggy’s Bold Rs 150 Cr ESOP Expansion Empowers Talent in 2025
Last Updated on Monday, July 14, 2025 12:29 pm by Siddhant Jain
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