Mumbai: On July 23, Ltd. listed on the Indian stock exchanges at a premium of more than 50% on its issue price of 76 rupees. That was exactly one week after the IPO of the food delivery and restaurant discovery platforms went live and the stage for a stage gathering of startups who want to go public in the next few months.
I delved into how Deepinder Goyal, founder and CEO of Zomato, and his team meticulously planned and timed their trip to the public markets.
On September 12, 2020, Goyal wrote an email to the staff that seemed more like an update on a fundraiser.
But in the middle of that email, he said the grocery delivery and restaurant platform was on its way to entering public markets by mid-2021. This was the first time he’d given a specific schedule for an IPO.
“Our finance / legal teams are working hard to get us IPO sometime in the first half of next year. We hope to create great value for our current employees who have ESOPs (Employee Stock Ownership Plans) sometime next year, ”he wrote.
Like most people, I was skeptical whether the schedule was achievable or too ambitious.
But last week, Zomato was the first major consumer internet startup in India to debut – and what is to become
So what worked for Zomato in completing the IPO?
Reorganization of participation
Zomato’s first stock sale is undoubtedly a big moment for the Gurugram-based company and the entire Indian tech and startup universe, but it is also a guide on how to go public despite multiple obstacles.
Since the beginning of the year, Zomato has been tweaking its cap table with multiple rounds of funding to prepare for its IPO, but perhaps the most significant step in that direction was when the company managed to conduct secondary transactions to help China’s Ant Group get theirs Partly to dilute participation. Read this story from January.
- From the January 22nd report: Once the partial sale of the shares by Ant – a subsidiary of the Alibaba Group – is completed, Info Edge, founded by Sanjeev Bikhchandani, an early investor in the Gurugram-based company, will become Zomato’s largest shareholder with an estimated stake of around 17%. Ant Group once owned approximately 25-26% of Zomato until the company recently closed a $ 660 million financing on a valuation of $ 3.9 billion.
The China overhang (due to changes for Chinese FDI in Indian companies introduced by India in April 2020), which is proving to be a major stumbling block for Paytm’s IPO plans, has been treated very clinically by Goyal and his team. ETtech’s Digbijay Mishra and Ashwin Manikandan captured this in several stories, including this one.
With very little talk about Chinese shareholders on Zomatos Cap Table, it worked brilliantly for the 13-year-old company. Within a few months, US mutual funds like Tiger Global, Kora, Dragoneer, and Fidelity doubled with more money as Zomato focused on attracting new types of financier.
Crossover funds that invest in private and public markets were now up for the food tech major. Some of those eventually brought in more capital when the company brought in more than 180 anchor investors.
Here’s how Zomato’s cap table has evolved:
Door sills push open
While Zomato was shuffling its cap table, DoorDash Inc. was listed on the New York Stock Exchange.
On its debut, the loss-making grocery delivery app’s share price rose more than 85%, giving the company a market cap of around $ 60.2 billion – versus the $ 15 billion it was valued at in the private market. CNBC reported that the company was trading a little more than 16 times its forecast revenue for the full year based on its performance in the last quarter. As of July 23, the San Francisco-based company had a market capitalization of $ 59 billion.
Covid-19 led spike, trim losses
After the first few months, which were badly hit by the national lockdown, the restaurants, Zomato and Swiggy, began to recover.
Both companies also used this time to limit losses.
While Zomato sales declined nearly a quarter year over year to Rs.1,994 billion in FY21, losses decreased – from Rs 2,363 billion in FY20 to Rs. 812 billion in the same period.
Last year, Goyal said in a series of tweets that the company was on the 31st. He added that peak orders per minute reached 4,254, resulting in a gross goods value of Rs 75 billion for the day.
First the blocks
Sticking to the schedule and being the first to list gave Zomato a massive advantage.
The company has benefited immensely from a scarcity premium as no other consumer internet brand (one that has been built at considerable size and scale over the past decade) has gone public in India.
Adhering to the deadline, as Goyal mentioned for the first time in September, has evidently proven its worth, because the IPO benefited from the current euphoria on the stock markets.
On January 21st, at the same time as ETtech’s report on the sale of Zomato shares in the Ant group, the BSE Sensex, India’s most important share benchmark, reached 50,000 points. This rally has continued for the past six months, with the index closing at 52,975.8 on July 23.
Global bull run
Combine all of this with global liquidity, low interest rates, huge US public offerings, led by the tech package and backed by tools like dedicated acquisition companies, and you realize that there couldn’t have been a better time for Zomato.
The global IPO market had its strongest second quarter in 20 years, according to the report
Cloud company Snowflake’s IPO last September sparked a wave of companies following the same public market path, including Airbnb Inc.
Loss-making startups are still aiming to go public in the US this year as the exuberance continues. Robinhood, the stock trading app, is the newest.
Goyal always had the IPO in mind
During a conversation with this 2017-18 reporter, Goyal said that Zomato had his eye on an IPO for the past few years, but then Swiggy came along. With a well-capitalized newcomer, Zomato had to go out and get investor capital, roll up his sleeves and put his listing plans on hold.
But this move completely changed Zomato’s business model. From a primary restaurant discovery company with an ad-based revenue model, it has grown into a delivery and operations heavy company.
In that chat with ETtech on Clubhouse (the only media interview that Goyal gave this year), he said that Info Edge, as an early supporter, got them ready to go public for a while. When asked what it takes to prepare for an IPO and become a public company, Goyal said, “Discipline, trust, transparency, no mess in your books, keep it clean – those are the basics.”
Read more from our extensive coverage of the Zomato IPO:
■ Zomato’s Big Bang Debut Produces $ 18 Millionaires
Deepinder Goyal’s 5.5% stake in the company he founded was Rs 4,650 billion at the close of trading on Friday.
■ Zomato delivers a full spread on the listing day
The so-called foodtech company made an outstanding debut on Dalal Street with a jump of 51% above the issue price. Its market capitalization briefly exceeded Rs 1 lakh crore.
■ Today is a big day for Zomato. A new day zero: Goyal
As a publicly traded company, Zomato is under increased scrutiny, but CEO Goyal says the company’s focus remains on building long-term.
■ Info Edge earns 1,050 times the return on Zomato investments
Existing investors Ant Group, Tiger Global and Sequoia Capital are also sitting on the huge profits of the food supplier.