deepinder goyal: With just six months of cash in bank, IPO was a desperate contingency plan: Zomato CEO
MUMBAI: Food-delivery and restaurant discovery platform
won in the prestigious Startup of the Year category at the Economic Times Startup Awards 2021, was
chosen by the elite jury for executing a stellar debut on the Indian public markets, thereby aiding a crush of IPOs by new-age internet companies. Deepinder Goyal, cofounder and CEO of Zomato, said in an interview with ET that the company’s IPO earlier this year was not by design. Instead, it was a “desperate contingency plan” which had to be kicked off amid the worst crisis ever faced by the food-delivery major.
As Zomato battled the first wave of Covid-19 lockdown, a foreign direct investment (FDI) rule change which prohibited Chinese investors like Ant Financial from backing Indian firms came as a double whammy. The company was staring at a six-month cash runway, and an IPO seemed like the only option left on the table.
In an expansive interview, Goyal spoke to Samidha Sharma about Zomato’s IPO decision, diversification beyond food-delivery, M&As, its grocery play through Grofers, managing restaurant partners and riders on the platform, and his own journey as the founder of one of the buzziest internet companies in the country. Here are some edited excerpts:
This year was defining for Zomato because of how you broke the barrier between the private and public markets for Indian startups. The ET Startup Awards jury highlighted this point as being a standout one. What’s the IPO journey been like?
The IPO decision was because we didn’t have any other choice, honestly! We saw a 90% drop in business after the first Covid-19 wave, and the company had six months of money left in the bank. The remainder of the funding from Ant Financial (existing investor) was not coming through (due to changes in FDI rules). While we were talking to many investors, nothing was materialising. An IPO was a desperate contingency plan, where we said it is okay if we are grossly undervalued at even $500 million, but we really need to raise $50 million. That was the start of the IPO conversation, and over time, things changed. When we decided to go public in the middle of last year, we had a lot of hurdles to cross, in terms of figuring out regulations. We worked very closely with the markets regulator Sebi, and found them to be very helpful and forward-looking. I hope it has become easier for other loss-making tech companies planning to go public now.
Did you say you had six months of cash left…
Yes, in April last year, revenues had vanished but much of the costs were intact – international operations, dining out, among others. Since the fundamentals of the business were strong, we knew that valuations are temporary and surviving this phase was important.
A few months later though you received a lot of investor interest. The Doordash IPO added to the positive sentiment. Were you tempted to stay private?
Our IPO journey had already started before the Doordash IPO. Even as we were doing all the work, the business started getting better and by December last year we had overshot pre-Covid-19 gross merchandise value (GMV). We didn’t think of scrapping the plan to go public. We had to list one day, and as the IPO plan progressed from month to month, it made even more sense to go ahead with it.
Along the way, the market turned positively and we went almost from nothing to the current IPO. But we didn’t set out to break the glass ceiling or do anything big; we were just trying to live and survive and what happened, happened.
At that time were you at all thinking it would be such a breakthrough moment for Indian startups?
We didn’t know this at all – in fact, we didn’t even know it would be a breakthrough moment for us – let alone the entire startup ecosystem. It was only about 15 days before the actual listing that we started getting a sense that this would change the game for domestic startups.
What happened that made you realise the significance of the event?
By then the IPO issue was subscribed and we knew the valuation. The over-subscription gave us a sense that while the issue price would take us to a $7.5 billion valuation – the actual price will settle at $12-14 billion. Investors and others were telling us that it would change everything, but we didn’t know how much of everything would change.
The Zomato IPO has given a lot of confidence to a bunch of startups that had not realistically thought of an IPO. What’s the reason for this? Is it because you had a successful listing (with the valuation you got) or has the overall sentiment changed?
It is a mixed bag. Many founders have been asking me for advice on whether to go public or not. A lot of this comes from the valuation that Zomato received in the public market compared to our private valuation. But not all companies are ready to go public yet. You need a lot of financial discipline to go public, and we have had a tonne of practice working with InfoEdge (an investor in Zomato). Being public is a change of weather for us as well – but we’ve seen this weather from close quarters before, too.
So you think many companies aren’t ready yet to go public?
I am not the expert here, but from what I know, not all companies are ready. Some companies are two to three years old — they don’t have a predictable growth path or a path to profitability. Even while they are growing really well, they have very high burn rates. Some companies are saying they want to catch the IPO window, but I am not sure how long the window will remain open. At our end, we got lucky to have caught it.
How much of the IPO’s success was down to timing? And did you get a scarcity premium because no Indian new-age consumer tech company had listed before?
You can’t manufacture timing; it is about being at the right place at the right time, and it’s always a stroke of luck. We started our work one year ago and could not have timed the IPO. The market could have flipped a week before we finally listed, so we had no idea whether we were timing our IPO correctly or not. It is actually less about timing and more about luck. You can’t time these things because there is a 12-month lead time.
What are the upsides, downsides and the challenges that have come your way from being a publicly listed company?
We are way more objective about the business than we used to be. I am not sure if that comes at the cost of long-term bets we could take. We are now trying to strike a better balance between the here and now, and the long-term future of the business. We are still calibrating our risk appetite in this new environment we find ourselves in.
When you say you are being objective does that mean you are not as go-for-broke and aggressive as you were before going public?
Our public company mindset has been on for more than a year. You become a public company the day you decide to go public, not the day you actually go public. I think we are more aggressive now than we were before going public. Look at the international markets — they had slow growth but were profitable. However, we took the call to shut them last year. We wouldn’t have taken such calls if we were still private. Should we have invested in the international business and made it high-growth? Are we being too conservative? These are questions we ask ourselves. It is about tackling multiple priorities at the same time versus doing just a few things very well. And now as a public company it’s about finding that balance. We are thinking about all this a lot more now.
Last week, there was uproar about a customer care executive telling a Tamil user that he needed to speak in Hindi for his request to be serviced. Seeing the outrage against Zomato on Twitter, you fired the agent and later reinstated her. Do you think you could have done things differently? There is obviously far more interest in the company now as it is public.
We are a brand which somehow attracts controversy, and people love to drag us into social media battles. Yes, we could have handled things differently. How? Not sure. Maybe by not reacting to any of this at all… there’s no right answer here.
You have done a bunch of experiments and diversification but what is the overarching company strategy besides obviously the mainstay, which is the food delivery business?
Food delivery is the primary business and is doing well and growing. We need to make sure that we work hard to keep the food delivery business growing for the next few years. Outside of that, our dining out business has been shut but is starting to recover nowadays.
Food is what we will stay focussed on. It has humongous potential. We do not feel there is a dying need to expand to other businesses to fuel our growth. However, we are investing in some really good founders and companies — all in synergistic or adjacent areas to our business. We hope that over time, some of these companies and founders will choose to merge with Zomato to continue on their growth path. We are not asking any of these founders or companies for future M&A rights. We want chemistry to do the work here.
You’ve been sizing up, cleaning up businesses within Zomato. You took the call to shut international, nutrition and grocery in the run up to the IPO. What’s the reason for this? Is it to do with the ‘objectivity’ you spoke about?
Everything was happening in the run up to the IPO. If you are going to continue funding a business which doesn’t have legs, it’s actually a disservice to the people working in that vertical. They should be working on something else. Keeping that in mind, we don’t let businesses linger when they shouldn’t. In the process, we make sure that we are kind to the few people who lost jobs due to failed experiments. We look for jobs within the rest of Zomato, and if we really can’t find something, we offer generous severances and help with recommendations to help them find other jobs quickly.
But what happened with these businesses that you shuttered?
The growth of the food delivery business was such that in the bigger picture, these businesses had ceased to add much to the overall business. We don’t want to build businesses which can add just $1 billion to shareholder value anymore. We need to be prudent with our team’s time and the money in our bank. We will only invest in businesses which we see adding more than $10 billion to our market cap going forward.
How much of it has to do with you wanting to cut costs and turn profitable?
None of it has to do with cutting costs in particular. Or turning profitable. We have been through tough times in our life, so we have the required discipline around costs. We regularly prune unnecessary costs in the business.
Having seen Zomato for so many years, going public has become the flagship event for the company. Before this, Zomato’s always sort of been there, but never struck it so big…
The years when you say Zomato’s always sort of been there, but never struck it so big, were actually our best years as a company. People had written us off, nobody was talking about us and we didn’t even want to create a splash. We don’t like the media attention that we sometimes get. We would rather hide in a rabbit hole, put our heads down, and continue to work.
I think the last three–four years fundamentally changed the DNA of the organisation, to be customer-first, cost-conscious, and focussed on growth. So, the thousands of little things we did which were not worth much added up and compounded to bring us where we are today. Most of the team’s personal growth and the company’s growth and maturity came during the last few of our silent years. It was a distraction-free period to continue building.
How important has the team been in this journey especially over the past 3-4 years? Recently Gaurav Gupta, who was the face of Zomato during the IPO, left. He had been given the cofounder title.
We have a founders programme within Zomato where we say that being a founder has nothing to do with one starting the company, it is a mindset. Being a founder is about being a bar of excellence for the team. I will stop calling myself a founder if I realise that I am not one of the highest bars of excellence in the company. The pace at which you raise the bar of excellence for yourself is also very important.
Do you regret giving these titles? Will you continue with this founders programme? Doesn’t it dilute what a cofounder stands for?
If we have people who put the organisation first and foremost, that is a trait of a founder. It is the biggest hurdle that we expect anybody to cross to get to that level of ownership. It makes sense to call those people founders because you can let them take calls on behalf of the company without questioning their intent. I don’t regret giving these titles; they are one of the highest recognitions of people’s work at Zomato and we will continue doing it going forward.
Only the people who are here to build empires think that this dilutes what a cofounder stands for. If you are building an institution, you wouldn’t mind redefining some of these blocks.
Having transitioned from being a private company to a public one, how significant is team building and instilling a sense of ownership among employees?
People’s ownership comes from two things — one, the amount of ownership founders, their leaders and managers bring to the table. Second, your team will have higher levels of ownership if they have a leadership team they can trust.
It is a high-trust, high-ownership culture that drives ownership with more people, and it starts with me. I have to be able to demonstrate that our people are trustworthy, and that they can trust me. There is zero space for me to lie to our team. And I have to be on the ball as the first person to walk into the office and last one to go out, every single day. None of this changed as we became a public company. We are very adamant that we are going to preserve the foundation of our culture for as long as we live.
Is that something you are increasingly focused on — the people’s side? You always say that you’re happiest just putting your head down and working on the product. But has your role as a founder changed as the company’s evolved?
I didn’t make a conscious effort on the people’s side… I have only recently started enjoying connecting with people a lot more than I used to…
What stopped you before?
I wasn’t that person… I am an introvert. But I realised the importance of community and trustworthy colleagues along the way…
You actually enjoy connecting with people?
Connecting with but not managing people… once there is a high level of trust, communication is easier… you don’t have to second guess each other…
Why did you think you needed to do this?
Age happened along the way (laughs). I think empathy develops with age… also, at Zomato, the top 50-100 people know so much about each other, their lives, their needs and their wants. Everybody trusts each other fully, and we know that we have each other’s backs. We switch roles seamlessly, as our designations are only meant for the outside world. They don’t mean much inside.
But is that difficult to execute? Especially senior people coming from outside… how do they take to it?
It’s been this way for a few years and we’ve persevered with this culture. It’s not a simple thing to do especially when people are brought in from the outside. It has worked well for us till now, and I think we have tipped critical mass for maintaining this culture for the foreseeable future. For a scaled company to start doing something like this won’t work — it has to be done over a long period of time and then it becomes a part of how the organisation works.
You don’t typically hire a lot of senior executives from outside. Is that going to change?
I don’t agree with the question. I think we do hire a lot of senior executives from outside. Gaurav Gupta, Mohit Gupta, Akshant, Rahul Ganjoo, Damini – they were all hired from the outside directly into very senior roles, and all of them have been very successful here.
Tell me what’s happening with your on-again off-again grocery play and the significance of the investment in Grofers.
Grocery was an experiment for us. It wasn’t making sense both times so we shut it down. The customer feedback wasn’t great, and we could not see many answers to the problems we were facing. In the meanwhile, the local-merchant-powered dark store network for 10-minute grocery delivery being developed by Grofers was getting insane love and traction from customers. So we decided to back our friends at Grofers. We are hoping that this develops into something more than a financial investment over time.
So what’s Zomato’s strategy in grocery now?
We have a financial stake in Grofers. Our worst case scenario is that we have a financial investment that will give us some returns. Hopefully, it is not a financial but a strategic bet. And we’ll see whether it makes sense for us to merge at some point or not. But right now it’s too early to say anything.
Do you have integrations at all with Grofers?
Not really. We share learnings with each other, just like we would do that with other friendly startups. Grofers is using Zomato’s learnings on branding and marketing to its advantage. Our long-term hypothesis is that there will be more synergies at scale.
With so much happening in grocery and quick delivery space, this diversification is seen as a natural corollary for Zomato. Swiggy is going big here.
People have been talking about grocery business for the last three years, but nothing has fundamentally shifted. If we do something today or one year from now, life won’t be different for any grocery player. We are being patient, and hopefully smart here. The grocery market is way too big, so let people figure it out… we will eventually win because execution matters, timing is only one small part of the story.
And you won’t do grocery independently?
As of now, no. I don’t make forever statements anymore (laughs). We are not ruling out doing this on our own, and if we get some new information which I don’t know today, I am open to changing our decision. We are paranoid about what we could be missing, but we have no egos to reverse our decision if we learn something new. We don’t commit the sunk cost fallacy.
Are you looking at more acquisitions and strategic investments?
Always. If there are any interesting opportunities for us, we will certainly be interested.
Now with physical restaurants opening up, what are you seeing? Lot of restaurants have tried to go direct post Covid.
The restaurant industry has two parts — food-delivery and dining out, and there is little overlap. The food delivery side thrived beyond September-October last year — it was growing super fast. Economics changed for the business as discounts given out by restaurants had come down to effectively 9%, although it looks like it is far more. They are happy with us. Our restaurant NPS (net promoter score — a loyalty metric) is very high, it is 48 on the restaurant side. I think there’s scope to further increase this dramatically. There were restaurants which focussed on dining out but pivoted early on and also did well during the pandemic. Other restaurants which did not adapt to the times kept bearing heavy losses.
Restaurant owners who pivoted from being only-dining out to doing deliveries say business shrank for them substantially..
Of course, in any business, not everybody wins. Some people execute better than the rest. A lot of dining-out-centric restaurants shut down some of their most expensive locations, using their brand equity to generate business from dark kitchens. Even we shut our offices and terminated leases, as we did not know what it would be like going forward. If you live on next week’s hope and the hope never comes, then you are taking the wrong call. Mostly dining out businesses which did not want to learn a new business model, struggled. We tried to reach out to them, showed them recovery numbers expecting they would pivot to what was thriving, but some restaurants didn’t listen to us.
What about commissions that you charge? Isn’t it like 25-30%, and it’s really come down?
We charge way less than the standards followed in the sector today and we did not shoot for parity last year due to Covid. The commissions are completely justified as a large part of our commission goes towards the cost we incur to deliver the orders. We believe that order-direct is more expensive for restaurants than doing business with us, because we have the benefit of scale and the gig economy with us.
How are things on the rider side? There has been so much discussion on workers, low wages and whether the gig industry should be regulated.
People who are asking for regulations do not understand this sector. No one wants a permanent job with us. We face a weekly churn of 10% as most of the riders come here for a few months at most. It is a temporary job for everyone. Nobody wants to work as a food delivery agent forever. Our riders eventually want a predictable desk job and a Zomato job is a temporary gig until they find an alternative. We work very hard and find about 20,000-40,000 new riders every week. We would love it if people wanted to be on payroll with us, as our rider churn would theoretically go down dramatically, and a lot of our new rider onboarding cost would be saved. The customer experience would become better. But there is a reason that we offer our riders lightweight contract-based pay – because this is the only way our business can work.
What about the issue of wages being low?
We pay above minimum wages. Wage per active hour is how we measure if we are paying our riders fairly. Rs 135 per hour is the wage on the platform and the minimum wage ranges from Rs 50-75 per hour, depending on which state you are in. A good chunk of our riders make more money than most people working in hotels, and as our drivers and maids. Our riders take home (post fuel expenses) almost twice the rate of India’s national per-capita income.
But you will not make any changes in the wage structure?
For now I think we are paying well. We would pay more if we could afford to. The sector is creating a lot of jobs in the country which no one else is.
Even as you are expected to pay riders better, you say you are uncomfortable with capitalism as it exists today. Could you talk a bit about Zomato’s Feeding India campaign during Covid19 and the purpose behind this initiative in the long-term?
The most prevalent shape and form of capitalism has always been uncomfortable to me. Businesses have the power and should drive all the change that our world needs — including social and environmental changes.
Feeding India is core to our company’s mission of “better food for more people”. We have so far served over 250 million meals to the underprivileged through this programme. Feeding India also has the ability to go beyond its mandate when society’s needs are dire – for example, it brought in more than 10,000 oxygen concentrators during the early part of the second wave, and was instrumental in saving millions of lives across the country. All such things give Zomato a purpose beyond size and money – without which we would not have the culture we need to survive and thrive.