Good morning [%first_name |Dear Reader%],

As expected, SoftBank-backed logistics startup Delhivery’s initial public offering (IPO) was no home run.

The Rs 5,235 crore (US$673 million) share sale scraped through last week thanks to institutional investors. The issue was subscribed just 1.6 times, compared to cosmetics and fashion e-tailer Nykaa’s 82 times and foodtech major Zomato’s 38 times last year.

The comparison is kind of unfair to Delhivery, since it’s hard to reconcile the current doom and gloom in the markets with the euphoria that accompanied Nykaa’s and Zomato’s listings.

Nevertheless, Delhivery will now be subject to the same punishing scrutiny and exacting expectations of public-market investors. Nykaa is the only one among the tech companies that went public last year to be trading above its issue price. And that’s due, in no small part, to the fact that it’s also the only one that’s profitable.

Naturally, Delhivery too will have to define a clear path to profitability. And it certainly helps that its listed rivals can show it how to get there.

Not just listing, even peers Blue Dart and TCI Express will push Delhivery to profitability

Valuations in private and public markets are as different as night and day.

Sure, a venture capitalist does look at the total addressable market that a potential investee is playing in, the competitive landscape, and how the company’s peers are being valued.

But the market size can be hard to pin down in many new-economy businesses, and there may often be no comparable players.

Even so, what carries the day for a lot of startups is the story they tell about how they intend to disrupt a particular business. And if the story is convincing enough, the VC is willing to go along with what the founder thinks her company is worth, or be even more bullish.

WeWork is probably the most egregious example of this phenomenon in recent times. SoftBank’s intemperate optimism took the co-working company’s valuation from US$17 billion in 2016 to US$47 billion in 2019. Then WeWork unravelled spectacularly, and is now worth US$5.4 billion.

Don’t get me wrong. A listed company’s market capitalisation is also, ideally, about its prospects. A popular valuation metric for listed companies is the forward price-to-earnings ratio, which is an indication of how much shareholders are willing to pay per share now based on the company’s future profits.

This is also influenced by how its rivals are valued. If there are no peers listed in the same country as the company in question, analysts often turn to comparable stocks in other markets.

You may wonder, why this prelude to a piece on Delhivery?

Because Delhivery is different from Zomato, Nykaa, and fintech company Paytm, none of which have strictly comparable listed peers.