Zepto IPO: ₹1,000 Crore Pre-IPO Round Replaces Listing Plans For Now

Quick commerce startup Zepto has shelved its initial public offering (IPO) plans for now and is instead raising more than ₹1,000 crore ($105 million) through a pre-IPO placement. The round is expected to see participation from existing investors, including Glade Brook, General Catalyst, Goodwater Capital and Nexus Venture Partners.

The decision to opt for a pre-IPO round rather than proceeding with the public listing came after Zepto found the terms proposed by domestic mutual funds for the IPO unfavourable.

The capital will be raised at a valuation of approximately $4 to $4.2 billion, according to one of the people cited.

Valuation Gap

The pre-IPO valuation represents a significant markdown from where Zepto stood in private markets just six months ago. The company was last valued at $7 billion in its most recent private fundraise. Incoming investors, particularly domestic mutual funds, had been valuing the company at $2.5 billion to $3 billion post-money for the IPO, far below Zepto's expectations.

Top domestic mutual funds, including SBI MF, ICICI Prudential, Kotak and HDFC, had flagged concerns around the company's cash burn rate and described it as unsustainable at the current pace of scale.

Cash Burn Problem

• Quarterly cash burn at the time of IPO discussions: Over ₹900 crore

• Cash reserves at that rate: Approximately three quarters

• Current quarterly cash burn: Around ₹700 crore

• Cash reserves at current rate: Approximately two additional quarters

The improvement in burn rate gives Zepto some breathing room, but the runway remains tight. The company is hopeful of returning to the public markets in the coming months with a stronger profitability profile that could support a higher valuation.

IPO Size And SEBI Rules

Zepto had initially planned to raise approximately ₹8,000 crore through its IPO but had since trimmed that target to ₹5,000 to ₹6,000 crore.

Under SEBI rules, IPO-bound companies can raise up to 20% of their proposed fresh issue through a pre-IPO placement, but that amount must be deducted from the fresh issue component, meaning the public offering size will shrink by whatever Zepto raises in the pre-IPO round.

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