Zepto pauses listing plans, seeks over ₹1,000cr in pre-IPO funding
What's the story
Zepto, a leading player in the quick commerce industry, has decided to put its initial public offering (IPO) plans on hold, as per Moneycontrol. Instead, the company is focusing on raising over ₹1,000 crore ($105 million) through a pre-IPO placement. The funding round will likely see participation from existing investors such as Glade Brook, General Catalyst, Goodwater Capital, and Nexus Venture Partners.
Regulatory framework
SEBI regulations on pre-IPO placements
The Securities and Exchange Board of India (SEBI) permits companies planning an IPO to raise up to 20% of their proposed fresh issue through a pre-IPO placement.
However, any capital raised this way will be deducted from the fresh issue component of the IPO. This means that Zepto can only raise the remaining amount through its public offering.
Initially, Zepto had planned to raise around ₹8,000 crore but has now reduced its IPO size to around ₹5,000-6,000 crore.
Financial challenges
Incoming investors' valuations and Zepto's previous fundraising round
Incoming investors, especially domestic mutual funds, are valuing Zepto at $2.5 billion-$3 billion (₹24,000-29,000 crore) post-money.
This is much lower than its earlier plans to raise money at a $5 billion valuation.
Just over six months ago, Zepto was valued at $7 billion in its latest private market fundraising round.
Strategic shift
Zepto's cash burn
Zepto was earlier burning over ₹900 crore every quarter and had cash reserves for just three more quarters.
This raised concerns among incoming investors about the company's sustainability at this rate.
However, the company's quarterly cash burn is now around ₹700 crore, giving it a runway of two additional quarters.
Zepto hopes to return to public markets in the coming months with improved profitability and a higher valuation.