Going public is one of the most significant milestones in a company’s journey — a transition from private ownership to public scrutiny. It brings with it the promise of capital, visibility, and growth, but also introduces a new layer of complexity, accountability, and risk. For Indian businesses, especially SMEs and mid-market enterprises, the Initial Public Offering (IPO) process is rigorous and highly regulated by SEBI, stock exchanges, and other authorities.
While a successful IPO can unlock tremendous value, the journey is fraught with challenges. Understanding and managing these risks early can make the difference between a smooth listing and a stalled one.
1. Regulatory and Disclosure Risks
The most critical challenge in an IPO journey lies in regulatory compliance. SEBI’s Issue of Capital and Disclosure Requirements (ICDR) and Listing Obligations and Disclosure Requirements (LODR) Regulations prescribe detailed norms on documentation, disclosures, and corporate governance.
Every figure, statement, and certificate in the Draft Red Herring Prospectus (DRHP) is subject to scrutiny.
Key risks include:
- Incomplete or inaccurate disclosures in the DRHP or RHP
- Delays in SEBI observations or additional clarifications
- Misstatements or omissions leading to penalties or even withdrawal of approval
Mitigation measures:
- Engage experienced merchant bankers and legal counsel with proven track records
- Conduct a thorough pre-filing due diligence covering all financial, legal, and tax aspects
- Use a centralized and secure data room to manage documentation and audit trails
A company’s credibility in the eyes of regulators and investors begins with the quality of its disclosures.
2. Financial Reporting and Internal Control Risks
IPO-bound companies must present three years of audited financial statements that comply with Indian Accounting Standards (Ind-AS). Weak internal financial controls, inconsistent accounting practices, or gaps in documentation can lead to audit qualifications or restatements — both red flags for regulators and investors.
Challenges often faced:
- Lack of standardised accounting policies across group entities
- Incomplete reconciliation of inter-company transactions
- Non-compliance with Ind-AS or inadequate internal control framework
Mitigation measures:
- Conduct a pre-IPO “financial hygiene check” at least a year before filing
- Strengthen internal control systems and ensure timely financial closing processes
- Appoint auditors with public-issue experience and a peer review certification
Sound internal systems not only reduce audit risk but also build confidence among institutional investors.
3. Market and Valuation Risks
Even with flawless compliance, market conditions can make or break an IPO. The pricing of an issue depends on investor sentiment, sector performance, macroeconomic conditions, and liquidity flows.
Overpricing leads to poor listing performance, while underpricing leaves money on the table.
Market risks include:
- Volatile grey market premiums (GMP) creating unrealistic expectations
- Sector rotations or negative sentiment during the issue period
- Listing-day volatility impacting post-IPO reputation
Mitigation measures:
- Combine valuation models — DCF, comparable company, and precedent transaction analyses
- Conduct confidential pre-marketing and anchor investor soundings
- Align issue timing with favorable sector and market conditions
A balanced valuation strategy ensures sustainable investor confidence beyond the listing day.
4. Legal, Tax, and Contingent Liability Risks
Pending litigation, tax disputes, or contingent liabilities can seriously affect IPO outcomes. SEBI mandates full disclosure of such risks in the prospectus, and any suppression of material information can attract strict penalties.
Common issues include:
- Ongoing or potential litigation not properly assessed
- Incomplete title to key assets or properties
- Undisclosed guarantees or off-balance-sheet exposures
Mitigation measures:
- Conduct comprehensive legal and tax due diligence
- Obtain expert opinions for complex cases
- Disclose material proceedings transparently in the offer document
Proactive resolution or disclosure of such issues safeguards the company’s credibility during the regulatory vetting process.
5. Governance and Reputational Risks
Post-listing, corporate governance becomes a central focus. The composition of the board, independence of directors, related-party transactions, and promoter conduct come under investor and media scrutiny. A single governance lapse can undo years of effort in building a positive market reputation.
Risks include:
- Inadequate board structure or lack of independent directors
- Weak internal audit or compliance functions
- Poor communication during crises leading to investor mistrust
Mitigation measures:
- Strengthen board oversight with independent professionals
- Establish key committees (Audit, Nomination & Remuneration, Stakeholders Relationship)
- Implement a transparent investor communication and disclosure policy
Public investors reward transparency and punish opacity. A strong governance framework ensures long-term value creation.
6. Cost and Timing Risks
Going public is expensive and time-sensitive. Between merchant banker fees, legal expenses, audit charges, marketing costs, and regulatory fees, IPOs demand significant financial and managerial commitment.
Typical challenges:
- Underestimation of total IPO costs (often 5–8% of issue size)
- Delays due to documentation gaps or regulatory queries
- Market window closing before completion of regulatory approvals
Mitigation measures:
- Prepare a comprehensive budget with contingency provisions
- Maintain strict project management timelines and milestones
- Use confidential SEBI filings where strategic to preserve flexibility
Every month of delay can increase costs and reduce the likelihood of a favorable market window.
7. Operational and Systemic Readiness Risks
Beyond paperwork, an IPO tests an organization’s operational maturity. Many private companies lack scalable systems for data reporting, compliance tracking, and shareholder servicing — all of which become mandatory after listing.
Key challenges:
- Outdated ERP or MIS systems unable to generate accurate reports
- Poor record-keeping and documentation of past transactions
- Unclear internal communication channels for regulatory compliance
Mitigation measures:
- Upgrade financial and compliance systems to handle public company reporting
- Define clear responsibilities between finance, legal, and investor relations teams
- Conduct internal mock audits before SEBI filing
A company must operate like a listed entity well before it becomes one.
8. Post-Listing Compliance and Reporting Risks
Once listed, the company must adhere to continuous disclosure norms under SEBI (LODR). Delayed or inaccurate reporting can lead to penalties, suspension, or erosion of investor trust.
Common lapses:
- Missed quarterly financial disclosures
- Non-intimation of material events under Regulation 30
- Inadequate shareholder grievance redressal
Mitigation measures:
- Implement a compliance calendar and assign accountability to a compliance officer
- Automate periodic disclosures and investor communications
- Conduct regular governance audits to ensure ongoing readiness
The discipline of compliance becomes a permanent feature of life after listing.
9. Dilution and Control Risks
An IPO inevitably leads to dilution of promoter shareholding. Once the company is public, promoters must balance control with the interests of institutional and retail investors.
Challenges include:
- Reduced promoter control due to regulatory lock-ins and public shareholding requirements
- Divergence in vision between promoters and public shareholders
- Pressure from institutional investors or activist shareholders
Mitigation measures:
- Plan the dilution structure strategically to retain adequate control
- Build transparent communication with large investors
- Align promoter interests with those of minority shareholders
Maintaining alignment between management and shareholders is key to post-listing stability.
10. Market Perception and Reputational Risk
Investor perception plays a crucial role in the success of an IPO. Negative media coverage, social media speculation, or inconsistent messaging can quickly erode market sentiment.
Mitigation measures:
- Maintain consistent, fact-based communication with stakeholders
- Proactively clarify media reports and rumors
- Engage in regular investor education and transparent briefings
Reputation is as valuable as capital — both must be managed with care.
Conclusion: Going Public is a Transformation, Not a Transaction
An IPO is not merely a fund-raising exercise; it’s an organizational transformation.
From strengthening internal systems to ensuring governance excellence and market readiness, every aspect of the business comes under scrutiny. Companies that view IPO readiness as a strategic, long-term process rather than a one-time compliance project are the ones that succeed post-listing.
A well-prepared company enters the public market with confidence, attracts quality investors, and sustains long-term value creation.
In summary, the key to navigating IPO risks in India lies in:
- Early planning — start at least 12–18 months in advance
- Engaging the right advisors — merchant bankers, auditors, legal, and tax experts
- Strengthening internal systems and controls
- Transparent communication with regulators and investors
- Maintaining governance discipline post-listing
For every risk that the IPO journey presents, there exists a structured mitigation strategy.
Success lies in preparation, precision, and proactive execution.
