Founded in 2008, by Deepinder Goyal and Pankaj Chaddah, Zomato is an Indian multinational restaurant aggregator and food delivery company. The start-up is backed up by Info Edge, Tiger Global, Ant Financial, Sequoia capital, Temasek etc, and is now present in 24 countries. India’s first online food delivery app is now going to hold an initial public offering (IPO). In the upcoming IPO the company is aiming to raise an amount of Rs 8,250 crores ($ 1.1 billion). This would most likely change the view of investors and start-ups regarding the capital raisings and exits.
The event will prove to be a big development for the start-up world, particularly in India, because despite having a great managerial regime, many start-ups were not tapping into Indian capital markets which has a high liquidity ratio.
Zomato is the first company in India, that’ll be organizing a mainstream IPO. Start-ups have never thought of IPO as a real option. The event will be followed by 7-8 start-ups going public. If the event becomes successful, it will open a door-way for other start-ups to start considering IPO as a way to go public to raise capital. If this event fails, then it will set a trend for the other start-ups to not go for an IPO.
Zomato currently stands at 161,637 active delivery partners and 350,174 active restaurant listings including 132,769 restaurants that actively delivered orders. During the month for April-December 2020 the company disclosed $183.6 million in revenue, while their losses stood at $91.8 million during the same period. Moreover, the launch of Zomato’s gold package also impacted the sales of many restaurants. Therefore, this event will even provide a big step forward to all the SMEs in the restaurant sector as Zomato itself is an integral part of this sector. Moreover, due to the Covid 19 global pandemic, food delivery has been a major support for the survival of the food industry and Zomato has played a major role in this space.
The Zomato IPO will be among a handful of start-ups that are domiciled in India. These will include Policybazaar, Nykaa, Delhivery, MobiKwik, etc. A successful listing will also thrill other internet-first or internet-only start-ups to opt for listing. This will also determine, whether the excitement was worth it or not and will accordingly set in motion the next tech IPO’s.
A view at the current market behaviour also shows that the Nifty that has been hovering near 15,000 while the Sensex has been rallying to once again breach the 50,000 mark. While the market multiples are high, investors will be more interested in investing and more significantly in smaller companies. Earlier, it would have been harder to execute in the tech IPO’s but the condition is different now. Therefore, the timing is also apt to list now.
Moreover, food-tech has been one of the few sectors that benefitted from the Covid pandemic as people shifted to online ordering of food and food items instead of offline purchases.
The IPO will not only benefit the start-ups but will also boost investor’s confidence as India has been known for being unable to return enough of investors’ money to retain their confidence due to lack of large exits. Venture Capital exits had declined 70 per cent to $1.3 billion in 2020 from $4.4 billion in 2019. Other muted exits that were witnessed were due to the impact of pandemic on business which was escalated by lack of valuation of the business. There have been many other exits as well like the exit of Byju’s acquisition of Whitehat Jr, etc.
Lastly, it can be concluded that Zomato’s trial and error method, if proven successful will open a doorway for other internet start-ups to start exploring the local listings instead of shifting their base to US, Singapore or other countries. IT based companies like Infosys, Wipro, HCL etc, have their bases in India but most of their business are done outside India. Zomato’s big step to hold this event will act as an ice- breaker and will eliminate the traditional thinking which people have, that shifting abroad is the only way to kick-off their start-up business and to raise money and valuation.
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