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Jayant Mundhra
Ā ā¢Ā
Dexter Capital AdvisorsĀ ā¢Ā 6m
Itās sad how Urban Companyās founders are being slandered for selling Rs 780cr worth of shares ahead of the IPO. Cuz, the truth is, THEY HAD NO OPTIONS. The stocks were sold over the 6-month period from Sep24 to Feb25 to settle a financial obligation from a 2019 rights issue thatās been misunderstood or overlooked in the chatter. And basis my experience, this is where the problem is - 99.99% of Indian literati writing and commenting on the company and founders donāt know what a RIGHTS ISSUE is. So, letās understand the situation in depth. .. In 2019, Urban Company needed capital to fuel its growth. To raise funds, it offered existing shareholders, including the founders, a chance to buy more shares through a rights issue. Think of it as the company saying, āIf you already own a piece of us, you can buy more to maintain your stake.ā These shares were partly paid-up. Thus, the founders paid a portion upfront (say, Rs 25 for a Rs 100 share) and agreed to pay the rest later, leaving them with a debt to the company for the unpaid amount (Rs 75 per share in this example). .. Fast-forward to now, as Urban Company gears up for its IPO. Thereās a key requirement: All shares must be fully paid up before going public. For that, the founders need to clear the remaining debt from the 2019 rights issue. And for that, they needed a lot of cash. Their solution? Sell some of their existing shares in secondary deals to private investors, raising Rs 260 crore each - totaling Rs 780 crore. And in effect, the money went back to the company. .. This makes it super clear - This wasnāt about ācashing outā or abandoning ship. Urban Companyās founders - Abhiraj, Varun, Raghav - still hold substantial equity, keeping them deeply invested in the companyās success. And now, just tell me - Upon reading this, does this sound like they are cashing out because the companyās post-IPO horizons are likely to be negative? It may be. Maybe not. But, does it come out that the founders selling the stake from Sep24-Feb25 has anything to do with any of that? I donāt think so. What do you think?
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