July 28 (Reuters) – Gupshup, a Silicon Valley messaging startup with a concentrate on India, on Wednesday mentioned it raised $240 million from Tiger World Administration and others to purchase again shares forward of a potential IPO subsequent yr.
Whereas enterprise capital investments are historically used for hiring extra engineers or increasing gross sales and advertising, buy-back offers permit buyers in a startup to appreciate their funding earlier than an IPO.
A flood of funds at a time when startups keep personal for for much longer has led to extra buy-back offers on the personal market, mentioned Ed Zimmerman, a lawyer at Lowenstein Sandler who teaches enterprise capital at Columbia College’s enterprise faculty, referring to the market basically.
Gupshup raised $100 million in April from Tiger World and was valued at $1.4 billion. Tiger World has emerged as the largest funder of enterprise offers this yr.
Gupshup, which suggests chit chat in Hindi, permits companies to speak with clients by means of present chat channels like textual content messaging, mentioned CEO Beerud Sheth.
“We need to construct relationships with these massive buyers as a result of they can assist us in a future IPO and for our progress. However … taking an excessive amount of cash could be dilutive,” mentioned Sheth concerning the buy-back. As Gupshup has been round for nicely over a decade, Sheth mentioned there was even an investor who handed away, making the buy-back crucial.
The buy-back can even permit staff to money out, a problem for a lot of startups as delayed IPOs have stored many founders and staff wealthy solely on paper.
That is helped create an energetic marketplace for these shares on the personal market, mentioned Paul Maguire, managing associate at Iron Edge VC, which arrange funds to spend money on startup shares. Whether or not on the general public or personal market, buy-back offers have been typically an enormous endorsement of an organization, he mentioned, with out information of this deal.
Reporting By Jane Lanhee Lee; enhancing by Richard Pullin
Our Requirements: The Thomson Reuters Trust Principles.