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Zomato's IPO playbook


Zomato IPO

After its hugely successful IPO last week, Zomato made a stunning debut on Dalal Street yesterday (July 23). The stock closed at Rs 125.85 on the Bombay Stock Exchange, 65.59% higher than the issue price.

Join us as we delve into the various factors — from meticulous planning to perfect timing — that made Zomato’s journey to the public markets a hit.

Like the perfect meal, Zomato’s IPO got it just right

Hi, this is Samidha.

On September 12, 2020, Deepinder Goyal, Zomato’s founder and CEO, wrote an email to employees, which seemed more like an update on their fundraise.

Deepinder Goyal

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. For the first time he had given a specific timeline for the IPO.

Goyal wrote, “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.”

I was skeptical, as most people were, about whether this timeline was achievable.

But on Friday, Zomato became the first big consumer internet startup in India to make its public market debut. And what a bumper opening it was, as we covered the event ball by ball on ETtech.

So what worked for Zomato as it executed its IPO?

Rejigging its shareholding

Zomato’s IPO undoubtedly a big moment for the company and the overall Indian tech and startup universe, but also a playbook on how to execute on your IPO plan, despite many roadblocks.

I have written at least half a dozen stories in the run-up to the listing on how Zomato made its cap table (shareholding pattern) IPO-ready with all those financing rounds.

But for me the most significant step in that direction was when the company managed to execute secondaries 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 InfoEdge, an early investor in the Gurugram-based company, will emerge as the largest shareholder in Zomato with an estimated holding of about 17%. The Ant Group once owned about 25-26% in Zomato up until the company’s recently concluded $660 million financing at a $3.9 billion valuation.

The China overhang (due to changes introduced in April 2020 by the government for Chinese FDI in Indian companies), which is turning out to be a big stumbling block for Paytm’s IPO aspirations, was very clinically handled by Goyal and his team. My colleagues Digbijay Mishra and Ashwin Manikandan have captured this in several stories including this one.

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With very little being spoken about the Chinese ownership, it worked brilliantly for the 13-year-old venture.

Within a few months, US investment funds such as Tiger Global, Kora, Dragoneer and Fidelity, among others, doubled down with more cash as Zomato focussed on bringing in new types of backers.

Crossover funds, which invest in private and public markets, were now lining up for the so-called food-tech major. A clutch of these eventually ended up putting in more capital as the company roped in more than 180 anchor investors.

A look at how Zomato’s cap table has evolved

zomato ipo watch

Doordash bump up

All of this was happening amid the bumper listing of US food-delivery app Doordash.

On its debut, the loss-making DoorDash had seen its stock rise more than 85%, giving the company a market valuation of around $60.2 billion, up from the $15 billion it was valued at in the private market. CNBC had 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 of July 23, the San Francisco-based firm had a market cap of $59 billion.

Zomato vs global peers

First off the blocks

Sticking to the timeline and being the first to hit the public markets 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 our report on Ant group selling its shares in Zomato, the BSE Sensex, India’s key equity benchmark, hit 50,000.

That rally has continued over the past six months, with the Sensex closing at 52,975.8 on July 23.

Global bull run

Club all of this with the global liquidity, low interest rates, huge IPOs in the US led by the tech pack and aided by instruments like SPACs, and you realise there could be no better time to make a splash in the public markets.

Read: The global IPO market had its strongest second quarter in 20 years, report says

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.

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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: Rewind to 2017-18, I remember a chat with Goyal in Gurgaon during one of my meetings with him. He told me an IPO was something they were thinking of a few years ago and 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 IPO plan on the backburner.

But that move changed Zomato’s business model completely. From primarily a restaurant discovery company with an ad-based revenue model, it transformed into a delivery and operations-heavy firm.

In this chat with us 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 replied, “Discipline, trust, transparency, no mumbo jumbo in your books, keep it clean—these are the basics.”

Zomato journey

Let’s move on to other big developments of the week


ETtech DEALS DIGEST

Swiggy snapshot

Swiggy will use the funds to aggressively invest in businesses other than food deliveries, especially its hyperlocal grocery service Instamart. Read our explainer on why SoftBank chose Swiggy over Zomato.

PolicyBazaar

Policybazaar is eyeing to go public by December this year and plans to submit its IPO documents soon, sources tell us. The online insurance aggregator is said to be seeking a valuation of as much as $5 billion, up from $2.4 billion at the last funding round.The omnichannel eyewear retailer will use a majority of the funding to expand into Southeast Asia and the Middle East. This will include both organic and inorganic expansion. It also plans to expand further within India.

Social Commerce Graphic

Social commerce will unlock tier 2 and tier 3 markets and reach low-margin categories in fast-moving consumer goods and groceries, which large e-commerce platforms have not done so far, helping boost the overall e-commerce industry, experts and investors who view the sector as an extension of e-commerce told us.Byju’s Epic acquisition is part of its overseas expansion plans, wherein it expects to generate annual revenue of $300 million this financial year, said cofounder Byju Raveendran. The Bengaluru-based startup aims to invest around $1 billion in North America over the next couple of years.

Byju acquisitions

Private equity firms Bain Capital, Carlyle Group and KKR & Co., as well as French outsourcer Teleperformance SE, are in the fray to acquire the mid-tier IT services firm from Baring PE Asia in potentially the largest IT deal in India.

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Here’s a quick look at the top funding rounds this week

deals digest

OTHER BIG STORIES BY OUR REPORTERS

BharatPe

(L-R) BharatPe cofounder Ashneer Grover, Centrum Group chairman Jaspal Bindra, BharatPe group president Suhail Sameer

The story of how BharatPe, a three-year-old fintech startup, partnered 44-year-old NBFC Centrum Finance to acquire a banking licence and make a play for the troubled PMC Bank has more to it than meets the eye.

Delete clauses defining related parties, service providers as ecommerce entities, those banning flash sales, say industry associations, including those that count ecommerce majors Walmart-owned Flipkart and Amazon India as members. Read our explainer on the new India e-commerce rules and their impact.

ecommerce policy

Meanwhile, Karnataka HC has dismissed an appeal filed by Flipkart and Amazon India to halt the Competition Commission of India’s investigations into their marketplace operations.The central bank is framing several considerations on the scope and legal framework of the proposed CBDC (Central Bank Digital Currency) that will likely coexist with cash and digital forms of payments, said RBI deputy governor T Rabi Sankar. We recently did a deep dive into CBDCs and why central banks around the world are interested in them.Pegasus, developed by NSO Group, is perhaps the most powerful spyware ever created. It is designed to infiltrate smartphones — Android and iOS — and turn them into surveillance devices. The spyware has targeted globally more than 50,000 phone numbers, including 300 in India, for surveillance.BB Daily, BigBasket’s subscription-based morning essentials delivery business, is on the path to becoming “the most profitable” business for the company, says cofounder Hari Menon.This will address a key industry demand for clarity about the official agencies that are authorised to send such requests and the procedure required to be followed, sources told us.Twitter is facing several lawsuits over content posted on its platform after it lost its intermediary status under the Information Technology Act, for its failure to comply with the appointment of three key executives mandated by the revised Information Technology Rules 2021.Since collaborations drive a significant chunk of content creation on Instagram, the Facebook-owned company is giving its users the tools to co-author posts and short videos more easily.Indian IT’s big four firms have bagged a slew of big-ticket deals as global corporations step up spending on digital transformation in the aftermath of the pandemic.

That’s about it from us this week. Stay safe and get that jab 💉



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