Updated: Aug 6
In the contemporary landscape of startups, especially those attaining unicorn status, acquainting oneself with the terminology associated with their Initial Public Offerings (IPOs) is crucial. With consumer-centric technology-driven startups now venturing into the public market, comprehending these terms is indispensable for comprehending how investment bankers evaluate such entities.
Indian IPO investors have already witnessed the likes of Zomato, while other prominent names such as Mobikwik, Paytm, Nykaa, Policybazaar, Ixigo, Delhivery, and Flipkart are poised to follow suit. The IPO prospectuses introduce terms like GMV, AOV, cash burn, MAU, DAU, CAC, and churn. As many of these startups are yet to achieve profitability, operational metrics take precedence. Understanding these terms is imperative for gauging their business models, potential, and multi-billion-dollar valuations.
1. GMV (Gross Merchandise Volume):
- GMV reflects the overall transaction value of merchandise traded through the marketplace over a specific period.
- This value may encompass taxes, fees, services, and discounts.
- For instance, Paytm reported a FY21 GMV of ₹4 lakh crore, underlining the expansive reach of the marketplace.
2. AOV (Average Order Value):
- AOV is calculated by dividing GMV by the number of orders during a defined period.
- A higher AOV augments the prospects of profitability, contingent on the stability of the take rate (transaction fee).
3. Cash Burn:
- Cash burn pertains to the amount of cash a company expends within a fiscal year, surpassing its initial cash balance.
- Startups frequently prioritize growth, leading to significant cash burn.
- Investors must discern whether a fundraising effort seeks to cover expenses or establish sustainable growth.
4. Churn Rate:
- The churn rate denotes the percentage of existing customers who halt transactions over a specific timeframe.
- Lower churn rates are advantageous, signifying customer loyalty.
- Successful software companies maintain churn rates beneath 5-7%.
5. CAC (Customer Acquisition Cost):
- CAC quantifies the cost incurred to acquire a customer for a product or service.
- Lower CAC is favorable and can contribute to profitability.
6. User Engagement:
- User count and engagement metrics hold paramount importance for technology-driven startups.
- Metrics encompassing active users and monetizable users are critical.
- Companies preparing for IPO spotlight metrics like monthly transacting users (MTU) or monthly active users (MAU).
7. DAU (Daily Active Users) and MAU (Monthly Active Users):
- DAU and MAU serve as metrics gauging the number of users actively interacting with a platform daily or monthly.
- These metrics reflect user engagement and growth.
Understanding these terms is pivotal for investors analyzing startups entering the IPO sphere. As these companies underscore operational metrics and user engagement, familiarity with these terms enhances the ability to accurately assess their potential. If you're seeking to delve deeper into this industry, exploring an investment banking course with placement, a certification, or online options can provide valuable insights. Consider aspects such as investment banking course fees, the best investment banking courses, investment banking certification courses, courses after 12th, and especially the best investment banking course in India to pave your way toward success in this dynamic field.
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