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vSpring-Backed Fatpipe Pulls Back Public Issue

15 June, 2010

Early stage venture capital firm vSpring Capital-backed IT firm FatPipe Networks has withdrawn its initial public offer (IPO) after receiving tepid response from investors, in one of the first serious setback in the primary market in over a year.

What is significant is that the issue did not draw out investors despite it being of a small size (Rs 49 crore or a little over $10 million) and having a clutch of VC firms backing it.

The issue being managed by Keynote was subscribed less than 90% at the end of the extended issue period. It opened on June 7 with price band of Rs 82-85 a share and was scheduled to close on June 9. However, the issue period was extended as the IPO failed to receive a good response from investors and the lower end of the price band was lowered to Rs 80. Even after one week, the issue could not sail through.

The Chennai-based firm is into technology for WAN optimisation, security and bandwidth management. It planned to use the funds to expand the product line, establish new marketing offices globally, strategic acquisition, meet margin money for working capital requirement besides other expenses.

The promoters had merged operations of another group firm Ragula Systems Development Company that was based in Utah (US) two years ago. Ragula was, in turn, backed by a string of VC firms who now have a significant exposure in FatPipe.

Ragula had first raised $1 million in Series A funding from Draper & Associates, Wasatch Ventures and UTFC in 1996. It then went for preferred B Series financing to raise $8.1 million from VC firms and individual investors in April 2001 and approached vSpring for Series C finance in October 2002.

The key financial investors in FatPipe include vSpring (22.12%), Wasatch Ventures (8.85%), Draper & Associates (3.99%) among others. In total, corporate bodies own over 44% in the company and individual shareholders have 18% stake. Promoters Ragula Bhaskar and Sanchaita Datta own around 37% in FatPipe.

For the nine months ended December’09, FatPipe had total income of Rs 45.91 crore with net profit of Rs 5.2 crore.

The failure of the issue points to a relatively weak scenario for the primary market for multiple reasons. For one, the secondary market itself has been facing resistance. The expectations of huge issue flow due to the new public holding norms will also keep investors at bay anticipating pressure on stock prices due to the extra paper. Further, the tentative state of primary market is already visible with fewer new companies filing draft prospectus to Sebi, a large pipeline of companies already in the process of raising funds and unhealthy signs from European economy.


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4 Comments
Manoj Gautam . 6 years ago

VCs might give a serious rethink on their India strategy. Normally, in developed VC and PE markets VCs make an exit through stake sale to PE players or listing in alternate exchanges. India is peculiar as still we don’t have healthy alternative exchange mechanism and stake sales are few and far in between. Does that mean VC activities in India will take a backseat?? If it does, it would be a setback to policymakers as entrepreneurship in countries depends heavily on VC climate. Time for promoting alternative listing mechanism I think.

anonymous . 6 years ago

It is wrong to say that Fatpipe’s withdrawal is “one of the first serious setbacks in the primary market in over a year”. Two months back another IPO, Tara Health Foods Ltd; which opened its books for IPO @ about Rs 185 odd also had withdrawn after less than 6% subscription was recd. That was the first in over a year to be withdrawn

Siddharth . 6 years ago

A major ramification of this failed IPO is the negative signals the Indian market is sending to VCs/PEs. This will result in start-ups having to part with higher stakes.

pawan . 6 years ago

I dont think failure of this particular ipo will will have major ramifications as there were many negatives in the offering. Company’s size was too small and major revenue was from international business and also it was not easy for common investor to understand the company’s business model.

vSpring-Backed Fatpipe Pulls Back Public Issue

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