boAt Founders’ Pre-IPO Exit: Strategic Move or a Warning for Investors?
A pattern is emerging in India’s primary market that is catching the eye of seasoned investors and market watchers. Beyond the usual debates over high valuations, founders of major companies are increasingly stepping away from executive duties just before their Initial Public Offerings (IPOs).
The latest to join this trend is the popular homegrown audio and wearables brand, boAt. Co-founders Aman Gupta and Sameer Mehta have resigned from their operational roles weeks ahead of the company’s planned Rs 1,500 crore IPO. This move has sparked a discussion about the founders’ intentions and what it signals for the company’s future.
A Calculated Transition
According to boAt’s Draft Red Herring Prospectus (DRHP), both Gupta and Mehta have transitioned from their roles as Chief Marketing Officer and Chief Executive Officer, respectively. They will now serve as non-executive directors on the company’s board.
Abhishek Kumar, a SEBI-registered investment adviser and the Founder of SahajMoney, highlighted the timing as particularly noteworthy. “The founders have stepped down just 29 days before filing of the IPO prospectus and are transitioning from operational roles earning Rs 2.5 crore each to non-executive positions without any salary or sitting fees,” Kumar observed.
He suggests this could be a calculated decision to distance themselves from the company’s post-listing performance. “This could be a calculated move to distance themselves, probably to avoid accountability for post-IPO performance,” Kumar added.
A Red Flag for the Market?
When key figures who have been the face of a brand step back, investors often take notice. “Such acts are indeed viewed as red flags by investors,” Kumar stated. He explained that when insiders with deep knowledge of the business withdraw from daily operations right before a public listing, it can signal a lack of confidence in the company’s long-term prospects.
This concern is amplified by other issues reportedly seen at boAt recently, including leadership churn and slowing growth, which can make a founder’s exit seem less like a routine transition and more like a sign of underlying weakness.
Cashing Out or Building Anew?
The structure of boAt’s IPO adds another layer to the analysis. The public offering consists of a Rs 1,000 crore offer-for-sale (OFS) and a Rs 500 crore fresh issue. Kumar explained that funds from a fresh issue go to the company for its growth, while proceeds from an OFS go directly to the selling shareholders—in this case, the founders and early investors.
“In the case of boAt’s IPO, Rs 1,000 crore is through OFS versus Rs 500 crore in fresh issuance—meaning most of the capital raised would benefit existing stakeholders rather than the company itself,” he pointed out. This structure suggests the IPO may be serving as an exit strategy for the founders to unlock their wealth.
Ultimately, Kumar noted that the IPO’s success will hinge on broader market conditions. “Subscription levels will ultimately depend on broader market sentiment, brand strength, and how investors view valuation,” he concluded. In a bullish market, these factors can sometimes overshadow potential red flags.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts in this article are their own and do not reflect the views of Mumbai Samachar. It is advisable to consult a qualified broker or financial advisor before making any investment or trading choices.)