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Start-ups seem to be doing an awful job of making themselves popular with the investing public. Ola is not a listed entity, but its CEO Bhavish Aggarwal has publicly said it will go public in the first half of 2022. Investor expectations from a listed company are for a high level of probity.
It’s a surprise then as Moneycontrol reported that Ola will be acquiring a company promoted by Aggarwal’s brother, Avail Finance, for $50 million in a share-swap deal. The target company provides lending products to blue collar workers. The move is expected to help Ola expand its fintech offerings and allow it to offer credit to its driver partners, but a related-party transaction does raise questions. It could have gone ahead and entered this business on its own, if it needed to.
This comes even as questions are being raised about Zomato’s 10-minute delivery service that comes shortly after it announced giving a large loan to the company that operates the quick commerce company Blinkit. It’s been widely reported that Blinkit is to be acquired by Zomato and the loan is an interim arrangement, to keep the company running meanwhile.
Now, Zomato is a listed company. If it’s contemplating an acquisition, and the loan is an interim arrangement, should that fact not be disclosed to investors via stock exchanges? Sure, the deal may not be concluded but the circumstances are such — it owns a minor equity stake in Blinkit — that makes it good governance to disclose such a possibility.
The 10-minute delivery plan itself is coming under a barrage of criticism on multiple fronts. Yesterday, Ravi Krishnan had written about what might be Zomato’s motivations and how it may try to make it work and the risks of burning cash on this latest twist in its business strategy.
Today, we have Sundeep Khanna tracing this craze for quick delivery back to when Dominos promised a 30-minute pizza delivery and the problems that arose. He dismisses the arguments advanced in favour of the 10-minute pivot, pinning it down to that one thing that most promoters claim they don’t care about but secretly do. Read to know what that is.
When companies such as Ola or Swiggy become part of everyday life, at least for those in the middle class and above, it matters less whether they are public or private companies. They acquire a public character and their actions send signals to others below them, thereby endowing them with a responsibility to get it right. The act of listing itself is seen as giving an exit to some investors or even the promoter, creating liquidity in the stock or raising money for the company’s growth plans.
All that may be true but what really changes is that public investors enter the ring, putting their savings to work in the capital market. Now, institutions could have invested even when these companies were private and a new set of institutions join the existing ones. The central change in the shareholding pattern is the individual investors who have come in. While it is one thing to pay a hefty valuation for a small $50 million stake and claim unicorn status, it’s quite another to have the company actually trade at a valuation, when anyone can enter or exit at that price in real time.
These individuals are entrusting their savings and in return expect that the listed company will grow it. Sure, they do anticipate that some of their investments will not make money. But their trust is eroded when companies or promoters take questionable decisions that make shareholders doubt their intentions, or make promises that don’t or won’t translate into better performance. That’s when the stock price enters into a nosedive from which it’s very difficult to recover. Sure, one could say that some legacy companies (those who are not start-ups) suffer from the same infirmities. But if that’s the view, then don’t ask for the moon on the valuations front at the time of listing.
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Ravi Ananthanarayanan Moneycontrol Pro
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