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Zomato IPO: Early investor Sequoia talks about the food delivery giant’s origins and X-factor

Zomato was the first modern Indian tech startup to go public and was valued at over $10 billion on listing day, compared with $3.5 billion less than a year ago. Long-time board member Mohit Bhatnagar, managing director at Sequoia Capital India, talks about the opportunity he saw in 2013, how things changed and what makes Zomato unique.

Mumbai / July 23, 2021 / 12:57 PM IST
Zomato's Deepinder Goyal with Sanjeev Bikhchandani and Mohit Bhatnagar on the first day of the IPO launch (Image: Twitter/@sbikh)

Zomato's Deepinder Goyal with Sanjeev Bikhchandani and Mohit Bhatnagar on the first day of the IPO launch (Image: Twitter/@sbikh)

In 2006, when Deepinder Goyal decided to upload the menu from consultancy firm Bain’s cafeteria to the company’s intranet to deal with the long lunchtime queues, no one could have known that it would be the start of a long, arduous journey leading up to a historic public offering for food delivery company Zomato, one that valued it at over $10 billion.

In a blog post, Mohit Bhatnagar, managing director of Sequoia India and a board member of Zomato for eight years, spoke about the startup’s early days, why Sequoia invested in it and what makes Zomato exciting.

“I first met Deepinder in July 2013, one day before a trip to the US to meet clients to support a fundraise. Sanjeev Bikhchandani, the founder of Info Edge and an early investor in Zomato, had suggested I meet the company; downloads of their restaurant discovery app were growing. We pulled up to the Zomato farmhouse, which is set on a large, grassy acreage on the outskirts of Delhi, at 8 am the next morning (Read all about that interesting first interaction here).

The first thing I noticed was a blazing red punching bag hanging on the front porch. It set the tone for the journey we all took together over the subsequent years; aggressive, sometimes bruising – but always building new muscles, while working super hard, to eventually create a resilient and enduring company. The farmhouse is a treasure trove of Zomato memories.

Read | Zomato listing: Food delivery giant crosses Rs 1 lakh crore m-cap after stellar debut

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Deepi served up hot coffee and an ambitious slide deck that talked about how Zomato was going to rule the global restaurant discovery world by creating something they called a vertical social network! The business was young ($400k in revenue) and was predominantly built on web traffic, driven by a large in-house content team and there were more iOS users than android. Still, two things stood out in that meeting:

First, the business was growing quickly on word-of-mouth and organic traffic, with zero marketing. Customers were loving the product.

Second, a refreshing and audacious vision to win globally, at a time when few Indian startup founders were looking beyond their borders.

I cancelled my US trip right away and requested for a special Sequoia India meeting on the next day, which was a weekend. I figured I was serving our clients better by staying back to partner with a company led by someone who was arguably India’s best product entrepreneur. In November 2013, Sequoia Capital India led Zomato’s $35 million Series A round, making it one of Sequoia Capital India’s largest investments at that point in time.”

Moneycontrol also wrote about the transaction recently while tracing Zomato’s origins, pivots and comebacks. Back then for Sequoia, Zomato, a listings platform, becoming a $500 million company would have been a good outcome Mind you, this was when Flipkart and InMobi were India’s only unicorns, businesses valued at $1 billion or more.

A few months after the investment, Bhatnagar walked into Zomato’s farmhouse to find a poster that said: “Zomato is Going to Eat Yelp’s Lunch.”

“Yelp, which pioneered restaurant discovery, had a $4 billion market capitalisation at the time. That didn’t intimidate Zomato, which had just acquired Urbanspoon in the US as an entry into the US and Canadian markets,” Bhatnagar wrote.

The Urbanspoon acquisition didn’t work out, but its ambition showed Sequoia that it was willing to take risks as long as there was a chance of winning.

“Many people later misread their bravado as arrogance. But it’s actually part of the company’s culture and DNA to put a stake in the ground by announcing their most audacious goals. Massive ambition is core to their being. This includes Zomato’s early decision to expand into global markets; to complement its high-margin classifieds business model by aggressively gaining market share in the food delivery market; its subsequent decision to shut down many international markets to focus on India; to get into new initiatives like Zomato Gold (Pro), payments and Hyperpure; to acquire Uber Eats in India. And to publish an annual report with all transparency years before they went public. Swift and courageous decision-making is a trait that deeply resonates within the company,” Bhatnagar wrote. This is Zomato’s X-factor, he added.

Even as it expanded, food was Zomato’s focus, as opposed to logistics.

“This clear vision took Zomato down a different road to other food discovery and delivery companies in India, the US, China. Many industry players look at the business through the lens of logistics and have made last-mile delivery utilisation their key metric, thereby branching into many categories like medicine delivery and courier services. Zomato’s founding team made a conscious decision to stay focused on ‘meals consumed’ at the core of their DNA,” Bhatnagar said.

When Zomato started food delivery, many people were unconvinced about whether it could make money and build a sustainable business.

“The decision to keep food at the core of Zomato’s DNA changed the company’s trajectory as it embraced food delivery,” Bhatnagar said.

“In their recent annual report, Zomato reported their contribution margin went from -47 rupees per order in Q1 FY20 to +27 rupees per order in Q1 FY21. The underlying unit economics continued to strengthen because the fast-growing base of repeat customers changed their behaviour and ordered more frequently; not only did people order more frequently, but their order sizes went up; (and) the Zomato product team innovated and iterated furiously to bring in efficiencies in the last mile of Zomato’s delivery operations,” he added.

Read | Zomato's Deepinder Goyal: Jio’s prolific growth has set us up for unprecedented scale, not altering course for short-term profits

Bhatnagar also pointed out Zomato’s social and diversity initiatives, ensuring women make up 50 percent of its board; they provide 26 weeks of paid parental leave to both men and women, and period leave to female employees. Feeding India, Zomato’s not-for-profit foundation, has served over 123 million meals to people in underserved communities in India.

“On behalf of everyone at Sequoia India, I’d like to congratulate Deepinder, his leadership team and all the ‘Zomans’ who have their fingerprints on the journey from idea to IPO. One of the most common phrases used at Zomato is: “1% done.” So while today’s event is an important milestone, I’m sure the team is already cooking up the next disruption to reshape the future of food,” he wrote.
M. Sriram
first published: Jul 23, 2021 12:56 pm

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