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Jayant Mundhra

ย โ€ขย 

Dexter Capital Advisorsย โ€ขย 2m

Itโ€™s sad how Urban Companyโ€™s 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 thatโ€™s 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 donโ€™t know what a RIGHTS ISSUE is. So, letโ€™s 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, โ€œIf you already own a piece of us, you can buy more to maintain your stake.โ€ 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. Thereโ€™s 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 wasnโ€™t about โ€œcashing outโ€ or abandoning ship. Urban Companyโ€™s founders - Abhiraj, Varun, Raghav - still hold substantial equity, keeping them deeply invested in the companyโ€™s success. And now, just tell me - Upon reading this, does this sound like they are cashing out because the companyโ€™s 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 donโ€™t think so. What do you think?

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