Zepto pauses IPO plans for now, likely to raise over Rs 1,000 crore in pre-IPO funding from existing investors

Quick commerce startup Zepto has put its IPO plans on hold for now and has instead begun work on raising more than Rs 1,000 crore ($105 million) through a pre-IPO placement, people familiar with the matter told Moneycontrol. The funding round is expected to see participation from existing investors including Glade Brook, General Catalyst, Goodwater Capital and Nexus Venture Partners, the sources added.

The Securities and Exchange Board of India (SEBI) allows IPO-bound companies to raise up to 20 percent of their proposed fresh issue through a pre-IPO placement. However, any capital raised through this route must be deducted from the fresh issue component of the IPO, meaning Zepto can raise only the balance amount through the public offering.

Zepto was initially planning to raise around Rs 8,000 crore but has since then trimmed its IPO size to around Rs 5,000-6,000 crore, Moneycontrol earlier reported.

The report also added that incoming investors, especially the domestic mutual funds, were valuing Zepto at anywhere between $2.5 billion and $3 billion (Rs 24,000-29,000 crore) post-money, sharply lower than its initial plans of raising money at $5 billion. The company was valued at $7 billion just over six months ago, in its latest private market fundraise.

“Zepto is expected to raise the capital at a valuation of around $4-4.2 billion. The company opted for the pre-IPO round after finding the terms proposed by domestic mutual funds for the IPO unfavourable,” one of the persons cited above told Moneycontrol.

Zepto, Glade Brook, General Catalyst, Goodwater Capital and Nexus Venture Partners did not immediately reply to Moneycontrol’s queries.

Incoming investors, especially the top domestic mutual such as SBI MF, ICICI Prudential, Kotak, HDFC and others, had flagged concerns around the company's cash burn and said it would be unsustainable for the company to continue scale at this rate.

Zepto was burning over Rs 900 crore each quarter and was left with just three quarters of cash which was a cause of worry among incoming investors.

Zepto is however hopeful it will return to the public markets in the coming months with a better profitability profile and be able to command a higher valuation, per sources. The comany's quarterly cash burn is now around Rs 700 crore which will likely mean it has cash reserves for two additional quarters.