The overwhelming response to Zomato’s Rs 9,375 crore IPO is a defining moment that marks a major historical milestone and a tribute to the entire private digital ecosystem. Zomato IPO is a landmark event and solid proof of cross-section investor interest in internet stories. There has never been an event like this!
This is great for India, as the Internet economy is horizontal with dynamic influence on almost all vertical industries (from D2C brands to logistics). This will help unlock trapped value in multiple industries and entrepreneurs.
Zomato IPO is a confluence of many well-known and commented upon factors. Now founders would have an option to think ‘I for IPO’ after they are done with the alphabet series A, B, C, D round of financing. By the time they get to around Series I, they should think of IPO. And, the Indian equity market will confidently back-scale internet leaders (across consumer and enterprise segments).
With listed internet equity and, particularly, with platform and operating system style business models that the best founders are deploying, there is now an option for investors to similarly play deep secular trends. The internet economy would lead to ‘digitalisation’ (much like ‘financialisation’ by the FIG sector) of the entire economy. This is an ‘operating leverage’ play on a broad cross-section of Indian consumers and enterprises and one which is currently in the expansionary phase. It is quite possible that, like in the US, China and other large economies, digital tech will drive a bulk of the value creation. This makes the Zomato IPO a moment in history and a moment of truth.
Surely, there might be periodic down-cycles and a few wobbles along the way, but the genie is now out of the bottle. Investors know that with listed internet equity, they get way above average corporate governance, dynamic and honest management teams, an ‘alpha’ factor, innovation and at least 15-20-odd years of founder-led growth. And, investors seem to have decided (via the Zomato IPO) how they will react to this.
The other thing that commentators usually forget is that “at the end”, the internet companies have to ‘end up’ being listed. In the US (with companies like Stripe), such an eventuality is usually deferred until about $50-100 billion in value. In India, most companies have been private with private VC/PE funds for 5-10 years plus, which means that the liquidity event end line is high for most.
In India, the threshold to list will, therefore, come earlier around the $5-10 billion equity value mark. This also means most of the life of successful internet companies will be as listed companies. What seems like an exception today will, in a few years, be the rule.
All of these are excellent indications for institutional investors, retail participants (including the younger ones), tech companies, and their backers. We would not be surprised if, in this decade, there are over 100 listed internet / new age unicorns in India. For context, in the entire listed Indian market ‘today’ (in July 2021), there are less than 400 unicorns.
Zomato’s IPO will usher listings of a significant number of digital technology companies in the coming quarter. It will naturally give a solid boost to entrepreneurship, particularly the Startup India movement, enabling wealth creation and deepening our capital markets.
(S Ramesh is the Managing Director and CEO at Kotak Mahindra Capital Company. Views and opinion expressed in the column are his own.)