Bengaluru: Cloud computing start-up E2E Networks Ltd, a largely bootstrapped venture that counts Blume Ventures as one of its few major investors, is all set to go public on the country’s flagship small and medium business stock exchange, marking a rare public exit for India’s fledgling start-up ecosystem.
E2E, which was co-founded by Tarun Dua in 2009, will list on NSE Emerge.
Its initial public offering (IPO) will also mark a second major exit for Blume in less than three months, after Minjar Cloud Solutions was acquired by Silicon Valley-based cloud computing firm Nutanix. Blume, however, is not exiting completely—as of now, the venture capital firm, along with other investors of E2E, plans to sell about a third of its stake.
The public offering of the Delhi-based start-up, which is selling less than a third of its shares, is valued at roughly Rs22 crore, with an expected post-money valuation of roughly Rs85 crore. The face value of the equity shares is Rs10 apiece and the offer has been priced Rs57 a share.
The public share sale marks the culmination of a nearly decade-long journey for E2E, which was valued at $500,000 about seven years ago and is one of the few examples of a low cash-burn, profitable start-up business—a rarity at a time when the country’s most valuable start-ups such as Flipkart and Ola are nowhere close to profitability and are reporting hundreds of crores of losses every year.
“Surprisingly Tarun was one of those founders who (built a company that) was cash-flow break-even then and is cash-flow break-even now," said Karthik Reddy, managing partner at Blume Ventures.
“It pays to build profitable businesses, as opposed to cash-burn, high-growth businesses only in this country, as long as you have the conviction to build as a public company, which is usually a 5-10 year journey. Then it is a good avenue to tap and makes it attractive for everybody including founders, investors, employees," he said.
For E2E, the IPO also marks the conclusion of a remarkable journey for a start-up that struggled to attract any meaningful attention from investors when it started out, but has ended up multiplying its revenues more than 60 times since then.
“We basically thought there was a gap in the market—the market is not uniform on the hosting side. Unlike the behemoths in the data-centre space and the hosting space, who also tend to own data centres like Amazon and Microsoft Azure on one extreme, and the original data-centre businesses like NetMagic, Tarun had figured out a way to build a virtual layer on top of that— basically lease out the physical infrastructure and build a virtual layer, with just the machines being owned by him," said Reddy, explaining why Blume decided to back E2E back in 2011.
“When we bet on E2E, we thought that space was open. Unfortunately and tragically for us, the VCs (venture capitalists) back then did not believe that a little start-up could threaten that kind of empire-building on both sides, sitting in the middle with a virtual play and actually build something meaningful. This is unfortunate, but those were the headwinds we faced when we went into the venture capital ecosystem," he added.