Mumbai: On July 23,
Ltd. listed on the Indian stock exchanges at more than 50% premium to its issue price of Rs 76. That was exactly a week after the food-delivery and restaurant discovery platforms initial public offering went live, setting the stage for crush of startups which are looking to go public over the next few months.
On September 12, 2020, Goyal wrote an email to employees, which seemed more like an update on a fundraise.
But somewhere in the middle of that email, he said the food-delivery and restaurant discovery platform was on course to tap the public markets by mid 2021. This was the first time he had given a specific timeline for an IPO.
“Our finance/legal teams are working hard to take us to IPO sometime in the first half of next year. We hope to create a lot of value for our current employees who have ESOPs (employee stock ownership plans) sometime in the next year,” he wrote.
I was as skeptical, as most people were, if the timeline was achievable or too ambitious.
But last week, Zomato became the first big consumer internet startup in India to make its market debut— in what turned out to be a
So, what worked for Zomato as it executed its IPO?
Rejigging its shareholding
Zomato’s initial share sale is undoubtedly a big moment for the Gurugram-based company and the overall Indian tech and startup universe but also a playbook on how to execute an IPO, despite several roadblocks.
Since the beginning of the year, Zomato shuffled its cap table with multiple funding rounds to make itself IPO-ready, but perhaps the most significant step in that direction was when the company managed to execute secondary transactions to help China’s Ant Group partially dilute its stake. Read this story from January.
- From the January 22 report: Once the partial stake sale by Ant—an Alibaba Group affiliate—is executed, Sanjeev Bikhchandani-founded Info Edge, an early investor in the Gurugram-based company, will emerge as the largest shareholder in Zomato with an estimated holding of about 17%. Ant Group once owned about 25-26% of Zomato until the firm’s recently concluded $660-million financing at $3.9 billion valuation.
The China overhang (due to changes introduced in April 2020 by India for Chinese FDI in Indian companies), which is turning out to be a big stumbling block for Paytm’s IPO plans, was very clinically handled by Goyal and his team. ETtech’s Digbijay Mishra and Ashwin Manikandan have captured this in several stories, including this one.
With very little being spoken about Chinese shareholders on Zomato’s cap table, it worked brilliantly for the 13-year-old venture. Within a few months, US-based investment funds such as Tiger Global, Kora, Dragoneer and Fidelity, among others, doubled down with more cash as Zomato focused on bringing in new types of backers.
Crossover funds, which invest in private and public markets, were now lining up for the foodtech major. A clutch of these eventually ended up putting in more capital as the firm roped in more than 180 anchor investors.
Here’s a look at how Zomato’s cap table has evolved:
Doordash bump up
While Zomato shuffled its cap table, DoorDash Inc. listed on the New York Stock Exchange.
On its debut, the loss-making food-delivery app saw its stock price surge more than 85%, ascribing the company a market capitalisation of around $60.2 billion—up from the $15 billion it was valued at in the private market. CNBC reported that the company was trading at just over 16 times its projected revenue for the full year based on its performance in the latest quarter. As on July 23, the San Francisco-based firm had a market cap of $59 billion.
Covid-19 led spike, trimming losses
After the first few months of being severely hit as the national lockdown shuttered restaurants, food-delivery companies Zomato and Swiggy started making a recovery.
Both the companies also used this time to prune losses.
While Zomato’s revenue fell by nearly a quarter year-on-year to Rs 1,994 crore in FY21, per its red herring prospectus, losses, however, narrowed—from Rs 2,363 crore in FY20 to Rs 812 crore in the same period.
Last year, Goyal said in a series of tweets that the company recorded 60% higher sales on December 31 over the previous New Year’s Eve. He added that peak orders per minute hit 4,254, resulting in gross merchandise value of Rs 75 crore for the day.
First off the blocks
Sticking to the timeline and being the first to list gave Zomato a massive advantage.
The company has gained immensely from a scarcity premium as no other consumer internet brand (one built over the last decade with considerable scale and size) has gone public in India.
Sticking to the deadline, as first mentioned by Goyal back in September, has clearly worked as the IPO benefited from the current euphoria in the stock markets.
On January 21, coinciding with ETtech’s report on Ant group selling its shares in Zomato, the BSE Sensex, India’s key equity benchmark, hit 50,000 points. That rally has continued over the past six months, with the index closing at 52,975.8 points on July 23.
Global bull run
Club all of this with global liquidity, low interest rates, huge IPOs in the US led by the tech pack and aided by instruments like special purpose acquisition companies, one realises there couldn’t have been a better time to list for Zomato.
The IPO of cloud company Snowflake last September set off a wave of companies tapping the same public market route, including the likes of Airbnb Inc.
Loss-making startups continue to aim to go public in the US even this year, as the exuberance continues. Robinhood, the stock trading app, is the latest.
IPO was always on Goyal’s mind
During a chat with this reporter in 2017-18, Goyal said that Zomato was eyeing an IPO for the past few years, but then Swiggy came along. With a well-capitalised newcomer, Zomato had to go out and snag investor capital, roll up its sleeves and put its listing plans on the backburner.
But that move changed Zomato’s business model completely. From primarily being a restaurant-discovery company with an ad-based revenue model, it transformed into a delivery and operations-heavy firm.
In this chat with ETtech on Clubhouse (the only media interview Goyal has given this year) he said having Info Edge as an early backer made them IPO-ready for a while. Asked what it takes to prepare for an IPO and become a public company, Goyal said, “Discipline, trust, transparency, no mumbo jumbo in your books, keep it clean—these are the basics.”
Read more from our in-depth Zomato IPO coverage:
■ Zomato’s big-bang market debut mints 18 dollar millionaires
Deepinder Goyal’s 5.5% stake in the company he founded was worth Rs 4,650 crore at the close of trade on Friday.
■ Zomato delivers a full spread on listing day
The so-called foodtech company made a stellar debut on Dalal Street with a 51% jump over issue price. Its market cap briefly topped the Rs 1 lakh-crore mark.
■ Today is a big day for Zomato. A new Day Zero: Goyal
As a publicly-traded company, Zomato will be subject to increased scrutiny, but CEO Goyal says the company’s focus remains on building for the long-term.
■ Info Edge clocks 1,050 times return on Zomato investment
Existing investors Ant Group, Tiger Global, Sequoia Capital are also sitting on huge gains in the food-delivery company.