zoom nearly 1,050 times after the food delivery app’s IPO. Bikhchandani, who has been closely associated with Zomato through all its crests and troughs, told ET’s Digbijay Mishra and Sneha Shah in an interview that it will hold on to the bulk of the shareholding (around 15%) as it sees tremendous growth potential in Zomato. Info Edge, he said, has seen an internal rate of return (IRR) of roughly 60% from the restaurant aggregator over the years, a record. Bikhchandani, a first-generation internet entrepreneur, also spoke about what the Zomato IPO means for the startup ecosystem and how exits will ensure more capital is ploughed back. Edited Excerpts:
For Info Edge, the Zomato IPO was a huge moment with unheard return on investment. Can you break down the numbers?
Overall, the Zomato investment has delivered handsome returns – our back of the envelope calculation is that the IRR is more than 60%. Over a 11-year period, this must be some sort of a record. Great companies do that for their investors. We are holding on to the bulk of our shareholding because we see tremendous growth potential in Zomato going forward. The credit goes to the Zomato team and not to us – they make us look like smart investors. Since Zomato is now listed, this IRR will change every day along with Zomato’s stock price. We like to focus on investing behind great founders chasing great ideas – an IRR is the happy incidental outcome.
Before Zomato got listed, there was a debate about private and public market valuations. What do you think after the IPO?
The Indian public market is evolving. The retail interest in the Zomato IPO was unprecedented. We have received reports from online brokerages that the Zomato IPO catalyzed the entry of many people who had never participated in equity markets in India before. It is also mistakenly believed that Indian startups need to domicile and list overseas in order to succeed. In nine cases out of 10 – companies that flip or externalize are making a mistake in my view. They are largely being pushed by their investors into doing this. It is a wrong call. If your market is in India and your operations are in India then the natural choice is to domicile and list in India. Life can get very complicated in a few years for a flipped company. The investors would have exited but as an entrepreneur you will be left holding a flipped company forever along with all the concomitant regulatory complexities.
What is your investment horizon for Zomato, especially since a window to offload stake has opened up?
We are in no hurry to sell. I was speaking to Rakesh Jhunjhunwala (well-known stock market investor) a few months back. He gave me some advice – “Sanjeev, if you come across a good company which is growing fast why should you ever sell? Hold on for life”. This is profound wisdom from one of India’s smartest investors. We have perpetual capital, unlike funds that have a defined time frame within which they need to give money back to the LPs. So, we have the luxury of being really patient.
Zomato’s listing is also seminal for the startup ecosystem — founders, VCs and angel investors. You also said newer ideas and founders need to be backed…
If you consider where growth and jobs have come from in the Indian economy over the last four decades, it has mostly been from companies and industries that had not existed earlier – IT Services, IT enabled services, private sector banks, private sector insurance companies, private telecom companies, ecommerce, internet companies, organized retail, private TV channels and several others. Old mature industries generally do not create as many new jobs. That’s why startups are especially important. At its peak, prior to Covid-19, the Zomato rider fleet was around 250,000. A similar number of people were working for Swiggy. This is the impact of just two startups.
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How Zomato executed its IPO plan
What made you back Deepinder Goyal and Pankaj Chaddah a decade ago?
Hitesh (Oberoi, the MD and CEO of Info Edge) and I were both using the site and we loved it. In fact, it was Hitesh who suggested that we look at it for investment. When we met Deepinder for the first time, we hit it off instantly. We were the sole investors for the first four rounds – we had that much conviction. It was a great product that was getting natural traction and it was a super team.
Did you anticipate Zomato doing an IPO so soon after Goyal first announced it to the team?
Truthfully, during the first Covid-19 lockdown in March 2020, things looked very difficult. It’s a testimony to the Zomato team and Deepinder’s leadership that the company came through the way it did. The business model showed resilience, the management showed the ability to adapt quickly to the changed environment and they navigated the turbulence remarkably well. Burn came down, revenue went up, unit economics improved and today the company is in far better financial health than ever.
Will the returns from Zomato prompt you to take more aggressive bets in early stage startups?
Our intent to invest in early-stage companies continues to be steadfast. Yes, there are many more investors today than a decade ago, but that is good for the ecosystem. There are also many more startups being founded. Entry-level valuations and round sizes are higher than before but the market, too, is larger and so outcomes could be bigger. It all evens out in the end.
Multiple other startup IPOs are in the queue. Going forward, would an IPO take more prominence over sector M&As, in terms of exits?
Both M&As and IPOs will happen. It is a great idea for a large growing startup with the right unit economics to go public. At the same time, it is a terrible idea to force a company that is not ready for it to go public. There is nothing worse than a bad IPO for a company, the founders, the investors and their employees.
Food tech saw a massive fundraising frenzy and price wars around 2016-17 and many other startups came into the space. What made Zomato survive and thrive?
Clarity of strategy and goals, a cool head in a crisis, flawless execution and very importantly the world’s best product. Ultimately, superior leadership by the management.
At one point, Zomato wasn’t sure of doing food deliveries while Swiggy was scaling up. What made Zomato change?
The realisation that this was the future and backing by large investors to fund the strategy.
You invested in Zomato at the right time. Any other prominent startup that you regret not investing early on?
Our anti-list is very large – Ola, Flipkart, Snapdeal, Lenskart, BigBasket, Taxi For Sure, Stanza Living, GoMechanic and BharatPe are some prominent ones. But the way we look at it is that we should worry more about whether the ones we said yes to are doing well and less about the ones we missed.
What’s your next Zomato in the current portfolio?
We have a number of other investments where the companies are looking very promising. The best known one is PolicyBazaar but there are also several others that have got strong external investors coming in after we invested – Bijnis, Shopkirana, Gramophone, Ustraa, Shipsy, Medcords, Dotpe, TrueMeds and Udayy. Then there are several others that we have invested in only recently, but where business growth has been very promising.
The last decade went in shaping the startup ecosystem as we see it today. What are you betting on for the coming decade?
We don’t invest top down by sectors. We like to meet good founders and figure out whether we want to back their ideas or not. We prefer to do it bottom up and try and find out what’s bubbling up. My role is limited to light-touch supervision of the investment effort now. Many of the future successful investments at Info Edge will have been the result of the investing team’s efforts rather than mine.
Zomato is looking at groceries again and so are other food delivery firms. Do you view Zomato as a food delivery company or last-mile logistics firm?
Abhi picture baaki hai … The things that the Zomato team are certainly not short of are imagination, speed, execution, adaptability, dynamism and high-quality strategic thinking. Watch this space.
They say it’s a two-player market. Amazon has entered Bengaluru, but has been quiet. Is the Amazon threat overrated in food delivery?
Zomato is waiting and watching with patience and are prepared. They are confident of not just defending, but also consolidating their position.
Traditional conglomerates are entering the space fast. How serious a threat are the Tatas and RILs to the young upstarts?
Both will co-exist. The entry of large players only validates the opportunity. Large players will also consolidate some of the startups, thereby giving profitable exits to investors. Good exits are very important to reward investors so that more and more investments go into startups.
