PE-Backed vs Promoter-Backed IPOs: Which One Has Outperformed?

Over the last four years, the Indian IPO market has been buzzing with activity especially from new-age digital companies and traditional businesses alike. But one trend stands out sharply: IPOs backed by private equity (PE) funds haven’t fared as well as those backed by traditional promoters.

Let’s explore what recent data says and why this performance gap exists.

Key Findings from IPO Performance (FY20–FY25)

A study of 218 IPOs from FY20 to FY25 reveals some interesting trends:

• 76% of promoter-backed IPOs delivered listing day gains
• 71% of PE-backed IPOs delivered listing day gains
• One-year returns were also stronger for non-PE-backed IPOs across the board

These differences suggest that promoter involvement may provide greater post-listing stability and investor confidence - at least in the short to medium term.

Why Are Promoter-Backed IPOs Doing Better?

It largely boils down to one concept: "Skin in the Game."

Promoter-backed companies usually have long-term business goals. The IPO is not an exit - it’s a growth strategy. In contrast, many PE funds view IPOs as a partial or complete exit opportunity, with lesser long-term commitment to the company’s direction.

In several modern IPOs, especially digital-first companies, promoter stake post-listing is often below 10%. That limited involvement can result in weak corporate governance or unclear vision post-IPO.

Companies like Eternal, which retained strong promoter engagement, have performed significantly better in the secondary markets compared to their peers.

The Challenge of Pricing Loss-Making IPOs

India’s IPO landscape dramatically changed around late 2021, with a surge of digital companies entering the market - most of them loss-making at the time of listing.

This created several investor challenges:

• Valuation was based on “eyeballs” or user metrics, not profitability
• Revenue growth was often subsidized by discounts or offers, funded through external capital
• Cash burn was high, and visibility on profits was poor

Investors were often driven by FOMO (Fear of Missing Out) rather than fundamental valuation metrics. Traditional benchmarks like P/E ratios or dividend yield had little relevance.

Why PE-Backed IPO Returns Are Still Debatable

While the data shows weaker performance by PE-backed IPOs, drawing conclusive judgments is tricky:

• These businesses are often long-term stories meant to deliver over a 4–5 year horizon
• Entry price matters, a well-priced PE-backed IPO could still be a strong long-term bet
• Many PE investors have now started to price their IPOs more rationally, learning from earlier missteps

So while promoter-backed IPOs may appear more stable in the short run, PE-backed IPOs shouldn’t be written off entirely.

Final Thoughts

Promoter-led IPOs tend to signal long-term commitment, operational control, and a growth mindset. PE-backed IPOs, on the other hand, are more of an exit vehicle where valuation, market timing, and sentiment play a bigger role.

As India’s capital markets mature, both types of IPOs will continue to coexist. The key for investors is not just who’s backing the IPO, but also what price you’re entering at, and whether the business model can sustain value creation over time.