Ant Financial may set terms for Zomato’s $500 million round
Key stakeholder may push food-delivery firm to forge a closer relationship with its portfolio company Paytm.
Ant Financial, the financial affiliate of Chinese internet giant Alibaba, exercised veto rights on all matters when it invested in the restaurant recommendation platform in October last year, according to Zomato’s regulatory filings with the Registrar of Companies, sourced from business intelligence platform paper.vc.
When the food-delivery major raised $210 million last year it signed an agreement with Ant Financial, according to paper.vc, which made Zomato an Ant Financial ecosystem company along with the Vijay Shekhar Sharma founded digital payments firm. Ant Financial, therefore, is likely to demand that the interests of Paytm be taken into consideration.
This will, however, end up restricting Zomato’s flexibility to operate in or take decisions on payments, ecommerce and online-to-offline (O2O) services, not just in India, but in all geographies in which it operates, as per a note from paper.vc. There are specific provisions in Zomato’s bye-laws which appear to protect the interests of other significant Ant Financial portfolio companies, especially Paytm in India.
Earlier this year, the Gurgaon-based firm had integrated itself into the Paytm app, but the partnership was dissolved a few months ago.
An Ant Financial spokesperson directed ET to refer to public disclosures for details, while Zomato had not responded to an email questionnaire at the time of going to press. “Zomato’s fundraising roadblock comes from the fact that it already has two large enterprises, Info Edge and Ant Financial, owning more than 55%, while fighting in a market which is going to eat up cash. So, how does a new investor come in at this stage?” an individual with knowledge of the deal, said.
Zomato will have to find a lead investor that Ant doesn’t view as a competitor, given that it has a right to veto the deal. “There was an informal agreement between the two that Ant would follow on and the money will come. But, Ant may not lead the round this time,” said another person.
Ant Financial led the last two investment rounds in Zomato. It took a 14.7% stake in February last year for a primary infusion of Rs 970 crore. This was increased to 23% in November 2018 when it led a follow-on round, regulatory filings show. InfoEdge continues to be Zomato’s largest investor with a 33% stake.
According to people close to Ant Financial, the company is reluctant to invest in India at the moment as it is trying to focus more on its home market where it is in a flux primarily due to the ongoing trade war between the US and China. Zomato has approached Ant Financial, Glade Brook Capital and Temasek, all existing backers, to be part of its next round, some of the people quoted earlier said.
According to an investor who recently evaluated the company, any potential new investor will have to undertake a significant secondary buyout, assuming it is accepted by the board, as well as deploy more capital to continue its fight with rival Swiggy.
Swiggy clocks an estimated 1.2 million orders per day across 300 cities, while Zomato fulfills about 1 million daily orders across the 500 cities it is present in, as per various industry sources. However, these numbers tend to swing rather dramatically, given that they are largely dependent on which platform raises its discounting strategy. ET reported on July 15 that Swiggy, too, was likely to close a new financing round.
The Bengaluru-based firm is in talks with South Korean funds including Korea Investment Partners, Mirae Asset Management, STIC Investments and Neoplux to stitch up a $500 million financing round, which is learnt to be led by its largest investor, South African internet giant Naspers. It is expected to value the company at around $4 billion, up from its $3.3 billion valuation previously. “Zomato’s net burn is $30 million,” said a person familiar with Zomato’s operations. The company has, however, around $300 million left in cash, giving it a 10 month runway, the person cited earlier added.
This can be increased by cutting costs and decreasing discounts. While it could give Zomato a few more months, it will also potentially lose market share, these people said. This puts Zomato on a sticky wicket.
When Zomato last raised capital from Ant Financial, it had projected a revenue of Rs 1,004.9 crore in FY19 against a loss of Rs 766 crore, according to a valuation document uploaded with the Registrar of Companies, which was sourced through paper.vc.
(Additional reporting by Aditi Shrivastava in Bengaluru)