Freshworks fiasco: High VC says Indian founders ought to see it as a ‘cautionary story’

Main SaaS start-up Freshworks, which grew to become the poster little one of Indian tech IPOs when it listed on NASDAQ final yr, has run into hassle within the US. The India-born and California-headquartered start-up is being sued for deceptive buyers by US-based regulation corporations Scott+Scott and The Schall Legislation Agency. The corporate has additionally been charged with “violations of the federal securities legal guidelines”.

Whereas Freshworks listed at a premium of 21 per cent over its IPO value of $36 per share, the inventory has misplaced virtually 75 per cent of its worth this yr amidst unstable market situations and plummeting tech shares within the US. FRSH is at the moment buying and selling at $12.32, down from its itemizing value $43.50 in September 2021. 

Main enterprise capitalist Rehan Yar Khan, who serves because the Managing Associate of early-stage fund Orios Enterprise Companions, known as this “a cautionary story of why Indian founders ought to incorporate in India and look to listing in India”. Although a NASDAQ itemizing would possibly seem extra “glamorous” and fascinating, the concept a overseas IPO will fare higher might not at all times be the fact. 

In a LinkedIn submit, Khan elaborated, “All regulatory enterprise environments are equally difficult. Every has its execs and cons. For instance, every US state has its personal taxes and people working cross-state have to file in a number of states. For founders who’re from India, they perceive India and are in a greater place to navigate the laws right here. Freshworks’ lawsuit probably reveals they’re a sufferer of this.”

Opposite to public notion, market itemizing situations in India may very well be extra beneficial than these within the US. “IPOs in India can occur at decrease toplines than within the US. Even at $300 ARR, a US SaaS firm, valued between $2-3 billion is a small cap, and can battle for an important IPO reception and subsequent protection. That’s as a result of the markets there are very giant. In India, a $50-$100 million topline firm can count on reception and good continuation protection on the general public markets,” Khan defined. 

He added, “Capital availability is excessive in India, there are a lot of home and abroad funds working right here. Debt can be extremely accessible. There isn’t any want to include abroad to entry capital.”

Freshworks, based in 2010 in Chennai, moved its base to San Mateo, California in 2019. Greater than 40 per cent of its revenues on the time got here from the North American market. On the time of itemizing, Freshworks Founder & CEO Girish Mathrubootham (an early worker of rival SaaS main Zoho), mentioned, “As we speak is a dream come true for me – from humble beginnings in #Trichy to ringing the bell at@Nasdaq for the Freshworks IPO. Thanks to our staff, clients, companions, and buyers for believing on this dream.” 

The Freshworks IPO created a windfall for early staff of the corporate (earlier generally known as Freshdesk), with over 500 of them turning crorepatis. The founder’s web price was estimated at $700 million submit the itemizing, which valued the corporate at ~$13 billion. 

In regards to the ongoing lawsuit, Freshworks responded by saying that it doesn’t “touch upon pending litigation and intends to defend this and any comparable case vigorously”.  

Additionally learn: Freshworks not so contemporary anymore? Agency faces lawsuits within the US for deceptive buyers

Additionally learn: NASDAQ-listed Freshworks prunes Q3 losses, information 37% income development