Four months after its blockbuster debut on the public markets, food delivery platform Zomato now wants to model itself after one of its early investors and largest shareholders- Info Edge.
It is looking to make financial investments to the tune of $50-$100 million in a clutch of startups over the next few quarters, as it wants to build a diverse investment portfolio and tap into the growing Internet market in India.
Zomato recently raised over $1.25 Billion by listing on the public markets, comprising a fresh issue of equity shares worth Rs 9,000 crore and an offer-for-sale (OFS) worth Rs 375 crore by existing investor Info Edge.
Sources familiar with the development told Moneycontrol that Zomato has approached founders of at least 10-20 startups in the consumer internet space with an offer to invest in them in return for a stake.
Of these, its investment in Shiprocket, which Moneycontrol reported about earlier this week, is likely to be announced along with its second-quarter results on November 10th, 2021. It is also likely to unveil its investment in business discovery and rewards platform Magicpin, which counts Zomato founder Deepinder Goyal as a board member. Zomato has already made an investment for a 10 percent stake in the grocery delivery app, Grofers.
Separately, sources said that Zomato might look to divest Fitso, a sports discovery startup that it acquired in January this year, as it looks to get out of non-core businesses. Zomato did not comment for this story as it is in its silent period ahead of its earnings.
“There are at least 5-6 companies lined up for investments of $50-$200 million. They have been approaching dozens of companies with term sheets. These are consumer internet startups in the growth stage, with a valuation of less than $1 Billion, who they believe will do well,” a person familiar with the development said.
Another source said that Zomato has also been expanding its corporate development team to scout for potential investments. Moneycontrol reported in September that Zomato is looking to beef up its finance function by hiring Nitin Savara, a senior partner at accounting firm Ernst & Young. Savara, a chartered accountant, and lawyer specializes in transaction tax and structuring and will be part of CFO Akshant Goyal’s team. Zomato had said then that it is in talks with a few folks to join Akshant’s team at Zomato.
“Zomato is not just a logistics company. It is an internet company. When companies become public, they grow larger and capital becomes cheaper. These are going to be optionality bets for them. This happened with Google and Facebook and many other internet companies,” an investor closely familiar with Zomato’s strategy told Moneycontrol.
“The cost of the investment is nothing as compared to the opportunity they lose out on if they are not invested in these companies. Over a period of time, if companies do not diversify, they die. The only thing Zomato needs to take care of is ensuring that their core business doesn’t struggle,” he added.
Zomato’s strategy to build an investment portfolio on top of its mainstay food delivery business is similar to the approach that Info Edge has in India or Tencent has in China.
Info Edge, for example, one of India’s oldest publicly listed Internet companies has a business portfolio comprising a jobs site (Naukri), a matrimony site(Jeevansathi), a real estate site (99 acres), and an education site (Shiksha). Apart from this, it has also made investments in start-up ventures such as Zomato, Policybazaar, Meritnation, Mydala, and Canvera.
On similar lines, Tencent, a Chinese technology conglomerate, is one of the world’s largest video game vendors, apart from operating apps such as WeChat and QQ. It has an investment portfolio comprising 800 companies, worth $107 Billion.
But analysts cautioned that Info Edge and Tencent could afford to take this approach since they were already profitable.
“Info Edge did these investments out of profits and not raised capital. The last time Tencent raised external money or posted a loss was in the early 2000s”, a person tracking the space said.
In contrast, Zomato posted a loss of Rs 360 crore for the April-June quarter, while its total revenue rose to Rs 844.4 crore during the same period. Its expenses rose to Rs 1,259.7 crore during this period, on account of higher employee benefits.
Since its listing, Zomato has witnessed a churn. Its co-founder Gaurav Gupta quit, it shuttered its grocery delivery, nutraceutical business as well as international subsidiaries in the US, UK and Singapore.