IPOs can’t be seen as ‘surrogate’ for financing: Infosys co-founder NR Narayana Murthy

IPOs can’t be seen as ‘surrogate’ for financing: Infosys co-founder NR Narayana Murthy

3 Jun    Finance News

Infosys co-founder NR Narayana Murthy on Friday called out the current crop of entrepreneurs for not taking initial public offerings (IPOs) seriously and not treating investors’ savings with respect. The IT veteran said: “IPOs have somehow been taken as a surrogate for the next round of financing. I think that’s not a good thing because an IPO comes with tremendous responsibility. Murthy was addressing a gathering at the ‘India Global Innovation Connect’, a global conference on start-ups.

He believes today’s entrepreneurs are in a “jam” and under pressure from venture capitalists, and looking at the IPO as the next round of financing, and unable to estimate the market size. “So invariably your costs go (up), but your revenues don’t go up, therefore (you) make losses, and market capitalisation comes down.”

He recalled the discussions he and another co-founders of Infosys had held before Infosys IPO. “An IPO brings onerous responsibility…as so many people with very little money would put faith in us and put in their meagre disposable income, it is important to give them a suitable return,” he said.

Murthy observed that in general we have not done a good job of estimating the market size. “We have traditionally, or by habit, rather overestimated the markets…we have overestimated the market size, also we probably don’t have good market research companies that can give us an accurate estimate of the market opportunity,” he said.

He also said he wouldn’t have wanted to be an entrepreneur in the current environment. “I don’t have the smartness that today’s entrepreneurs have, they have confidence, ingenuity and they’re facing a shortage of talent and access to markets is difficult. I don’t know if I could have managed,” he said.

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Listing three ingredients for success he said these were access to the customer or market access, access to talent and availability of venture capital funds.

Noting that market and talent access were easy for him and his team when they started at Infosys, Murthy said, “…there was hardly any job in India at that time, but today it is so difficult to first get to the market as there is so much competition from so many smart entrepreneurs. It is so difficult to get access to talent. I find this to be the main difference.”

“Also, VC money is easily available today…in our time, there was no VC or bank loan. Today, there is a lot of money chasing these ideas, and VCs also have a job to do,” he said, adding that there is a certain pressure on entrepreneurs to succeed as early as possible.

He advised entrepreneurs to not worry too much about regulation and the external environment and to focus on what could was under their control. Murthy observed that while every CEO will extol the virtues of competition in public, in private he would work to stifle it. Murthy also advised them that as leaders they would need to lead the way in austerity, sacrifice, lead by example in innovation, hard work and discipline, as he highlighted the concept of business value addition or consumer value addition.

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