IPO: Why are late-stage startups relying on private credit before their IPOs?

Mumbai: Several late-stage startups are increasingly raising interim private credit ahead of their initial public offerings (IPO) to buy out early investors to present cleaner capital structures to the public and boost mainboard valuations on listing. InMobi Technologies, Zepto, and Zetwerk are already in the market for such credit.

InMobi is in talks with private credit funds to raise $500 million in two tranches of $250 million each before its proposed listing on the exchanges. The advertising technology company, which is backed by SoftBank among other funds, will use the proceeds to buyout some of the existing investors.

Typically, costing 14-18% annually, these private credit funds will be repaid from the IPO proceeds.

Zetwerk Manufacturing, which is backed by Peak XV Partners and Lightspeed India Partners, have approached private credit funds to raise around ₹1,000 crore before the IPO.

Similarly, Zepto is in talks with Edelweiss Alternatives to raise ₹1,500 crore, as reported by ET on April 28. “We are increasingly seeing this trend of IPO-bound companies accessing the private credit market as a bridge financing opportunity,” said the head of a domestic credit fund.

“Such companies are looking for flexible and structured capital solutions that such a fund provides. Moreover, first generation entrepreneurs who have raised VC/PE capital are looking at increasing their stake prior to the IPO process through private credit. The exit for the credit fund is also well planned-through an OFS or a primary raise at the time of the IPO.”Private credit funds are also actively participating in this opportunity given downside risk protection and the potential for an equity upside. This marks the coming of age of the private credit space in India.InMobi would use the borrowings to buy back shares from existing private equity investors and finance an acquisition ahead of its IPO, sources said.

An InMobi spokesperson did not comment on the deal. Promoters will use an SPV to purchase stakes from investors such as SoftBank. The debt is expected to be raised through loans or private US dollar bonds at 14-18% interest, secured against the founders’ stake.

Similarly, Bengaluru-based Zetwerk Manufacturing Businesses, another IPO candidate, is also in the market for ₹800-₹1,000 crore in debt and is in discussions with Avendus to fund the exit of a private equity investor.

Founders Amrit Acharya and Srinath Ramakkrushnan are offering their personal stakes as collateral for the structured credit deal, which is expected to carry a three-year tenor.

Zetwerk plans to file draft papers in the next six months and raise $400-$500 million through the offering.

Quick-commerce player Zepto’s founders are also in talks to raise structured debt of around ₹1,500 crore to buy back shares from foreign investors ahead of its IPO. Founders Aadit Palicha and Kaivalya Vohra are in talks with Edelweiss Alternative Asset, family offices, and smaller credit funds.

As reported by ET, Edelweiss has submitted a binding bid where the debt is expected to be priced at 16% and the deal is likely to close by July. “With equity markets favourable but listing timelines still 12-24 months away, startups are leaning on private credit to manage growth, stake consolidation, or investor exits,” said a head of ECM head of a foreign bank. “Lenders are structuring these deals with convertible instruments, high-yield coupons, and public market-linked exits, betting on strong IPO pipelines.”