Zomato on course for a billion-dollar IPO without investor exits

Mumbai: Zomato, the food-delivery app poised to be the first among a growing tribe of Indian tech startups eyeing a listing this year, is expected to raise $750 million to $1 billion through its initial public offering (IPO), said two people familiar with the development.

But unlike traditional IPOs, no investor is likely to exit or take money off the table by selling their shares.

Deepinder Goyal, co-founder and chief executive officer of Zomato, told employees this week that the IPO will most probably be a 100% primary offering, keeping in mind the long-term upshot that the investors expect from the stock. This means the company will end up raising more capital, rather than shareholders offloading stock in the open market, Goyal said.

“No existing shareholder is willing to sell any shares in our IPO… People think that Zomato will be a $50 billion company in five years (I hope) and it will be unwise to sell shares right now,” Goyal said at a recent town hall. ET has reviewed the communication independently.

With Zomato’s investors not opting to sell any shares in the IPO process, existing backers which include the likes of Info Edge (India), Sequoia Capital, Temasek Holdings and Tiger Global, among others, would not rake in any returns immediately.

The development is significant because it creates a huge war chest for Zomato in its fight against a well-capitalised competitor like Swiggy, which too
is raising around $800 million in fresh funds.

Zomato is looking to go public by June at a valuation of anywhere between $6-8 billion,
ET reported earlier. When contacted for this story, Goyal offered no comments on the IPO details.


Pre-IPO Round

The company, which started off as a restaurant discovery and review platform,
recently closed a $250 million primary funding round with another $250 million of shares being sold by existing investors like China’s Ant Financial, ET reported on January 27. This transaction valued the Gurugram-based firm at $5.4 billion—significantly higher than the $3.9-billion valuation in December when it had
closed a long-drawn $660 million fundraising.

Investors are hopped-up on Zomato’s prospects of going public, following
the successful IPO of SoftBank-backed DoorDash in December, when the US-based food-delivery startup listed at $182—about 78% higher than its IPO price—on New York Stock Exchange. DoorDash, which raised around $3.4 billion in the initial share sale, was valued at $34.2 billion, more than double the $15 billion valuation it commanded in the private market a year ago.

On Tuesday, DoorDash’s market capitalisation stood at $53.6 billion.

Zomato and rival Swiggy
have benefited from a revival in the online food-ordering space after a few tough months last year due to the nationwide coronavirus lockdown.

While announcing the $660 million fundraise, Zomato’s Goyal had said that the company
was on track to record its best-ever monthly sales in December. “We are now clocking around 25% higher GMV (gross merchandise value) than our previous peaks in February 2020,” he had tweeted. “The tailwinds for food delivery businesses are clearly visible, and we believe that the growth of the sector will accelerate post-vaccine.”