Zepto Pauses IPO Plans, Set to Raise Rs 1,000 Crore in Pre-IPO Funding

Quick commerce startup Zepto has been in the news after it filed draft papers for an Initial Public Offering (IPO). Amid the buzz around the public issue, the quick commerce company has decided to put the IPO on hold for the time being.

According to a report by Moneycontrol which cited sources, the company has now shifted its focus toward raising capital privately. The company is reportedly working on securing more than Rs 1,000 crore or roughly $105 million. Notably the funds are likely to be raised via a pre-IPO placement round.

The pre-IPO funding round is likely to draw participation from the company's current financial supporters. Existing investors such as Glade Brook, General Catalyst, Goodwater Capital, and Nexus Venture Partners are all likely to participate heavily in this private placement.

Notably, the Securities and Exchange Board of India (Sebi) allows IPO-bound companies to raise up to 20 per cent of their proposed fresh issue through a pre-IPO placement. However, the market regulator mandates that any capital acquired through this alternative route must be proportionately deducted from the fresh issue component of the upcoming IPO. Thus, Zepto will only be permitted to raise the balance of its target through the public offering route.

Why Did Zepto Delay Its Public Issue

The company’s decision to delay the public listing follows deliberations on the company’s issue size and valuation. The quick commerce player initially sought to raise around Rs 8,000 crore but later reduced the targeted offer size to between Rs 5,000 crore and Rs 6,000 crore according to Moneycontrol’s report.

As the company’s management held discussions with prospective investors, especially top domestic mutual funds like SBI Mutual Fund, ICICI Prudential, Kotak, and HDFC, significant valuation mismatches emerged. The mutual fund institutions were reportedly valuing Zepto between $2.5 billion and $3 billion post-money.

The valuation estimated by the fund houses was significantly lower than the company's expectation of a $4 billion to $5 billion valuation and a drop from its $7 billion valuation achieved during a private fundraise just over six months ago.

Additionally, incoming investors expressed deep concerns regarding the operational cash burn rate. According to multiple reports, Zepto was burning an estimated Rs 865 crore every quarter, which meant the company was left with only three quarters of cash reserves. Amid these disagreements, the company finally chose to pause the public issue and reassess its financial strategy.

What Next For Zepto

Looking ahead, the quick commerce platform remains optimistic about its future on the stock exchanges. According to the report, the company does plan to return to the public markets in the coming months once it achieves a much better profitability profile.

By improving its financial health, the company hopes to command a higher valuation. Additionally, the management has already taken steps to reduce the quarterly cash burn and has brought it down to around Rs 700 crore, which extends their financial runway and secures cash reserves for two additional quarters. The extra time is expected to allow the leadership team to focus on fixing the fundamentals.