Gupshup, a Silicon Valley messaging startup focused on India, said Wednesday it had raised $ 240 million from Tiger Global Management and others to buy back shares ahead of a possible IPO next year.
While venture capital investments have traditionally been used to hire more engineers or expand sales and marketing, buy-back deals allow investors in a startup to realize their investment before going public.
A flood of funds at a time when startups are staying private much longer has led to more buyback deals in the private market, said Ed Zimmerman, attorney at Lowenstein Sandler, who teaches venture capital at Columbia University’s Business School, with a view to the General market.
Gupshup raised $ 100 million from Tiger Global in April and was valued at $ 1.4 billion. Tiger Global has proven to be the largest funder of venture deals this year.
Gupshup, which means chit chat in Hindi, enables companies to communicate with customers through existing chat channels such as text messages, said CEO Beerud Sheth.
“We want to build relationships with these big investors because they can help us with a future IPO and our growth. But … taking too much money can dilute,” Sheth said of the buyback. Since Gupshup has been around for well over a decade, Sheth said an investor even died, making the buyback necessary.
The buyback will also allow employees to pay off, a challenge for many startups as delayed IPOs have only made many founders and employees rich on paper.
This has helped create an active market for these stocks in the private market, said Paul Maguire, managing partner at Iron Edge VC, which launched funds to invest in startup stocks. Whether in the public or private market, buyback deals are often a great endorsement of a company, he said without knowing about the deal.
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