Zomato Ltd: Understanding the “Cap Table” from a governance perspective

Abstract

A considerable volume of academic as well as practitioner literature has looked at the financing of startups by venture capital (VC) and private equity (PE) firms. Much of it relates to the North American context and to a lesser extent to continental Europe. At the same time VC and PE industries have been growing in Asian countries, China and India being notably more active than all the others. The practice of early stage investing though is standardized to a substantial degree across different countries. The funding of early stage enterprises by sources such as VC and PE remains shrouded in secrecy in India as elsewhere in the world. This secrecy makes it difficult to validate the learnings from theory elsewhere in the world in the Indian context. The recent public offers by many VC backed firms has however produced a cache of information by way of mandated disclosures. This paper examines attempts to take advantage of that increased inflow of information regarding the financing strategy of Zomato Ltd., (Zomato, hereafter), a high growth startup that went through the multiple rounds of private financing and eventually made an Initial Public Offering recently. The paper is motivated by three considerations. One, it identifies the data available in public sources, based on the premise that an Indian firm making an IPO is mandated under Indian law to provide copious disclosures about its past financials. This in turn should serve as a starting point for subsequent cross-sectional analysis in future studies on the startup, growth and expansion financing of Indian startups, a topic on which the literature is sparse to non-existent. Two, it attempts to examine to what extent the actual practice of funding a startup in India is consistent with the findings of academic literature and the extent to which such practice is influenced by local institutional considerations. Three, it identifies the specific mechanisms of governance that have been deployed by early stage investors in Zomato. The history of Zomato is especially useful given that it spans an evolution across twelve years of operation, 37 issuances of securities, close to $ 2.50 billion of capital, mobilized from over 90 investors with hands on as well as relatively passive styles of investment engagement, persuaded by differing motivations such as strategic and financial considerations.