With 1k cr, He’s Food for Everyone’s Thought

Zomato started in Deepinder Goyal’s home, and the company went into the .
1,000-crore club the day he became a dad. Here’s the story of India’s hottest
start-up

By- SRUTHIJITH KK NEW DELHI 

    On the morning of 29 October, from about 9 am, Deepinder Goyal sat outside the
labour ward in the corridors of the Max Hospital in Gurgaon, signing on dotted lines
that his lawyers pointed him to. His wife went into early labour the previous night and
they had driven to the hospital. But he couldn’t avoid work. His company was closing
a new round of funding and as CEO and founder, his signatures couldn’t be done
without. So he had asked his colleagues to come to the hospital. 
By 10:30 am, his undivided attention was called for inside as his wife went into
labour. At 11:50 am, the 30-yearold engineer held his firstborn child — Siara, a baby
girl — in his arms. At half past noon, he stepped out and turned his mobile phone
back on. Some colleagues were waiting with the final set of papers. He placed a bag
on the nurse’s counter for want of a table in the corridor and signed off on a major
investment into his company. The deal valued Zomato, the company he started in his
bedroom four years ago, at. 1,006 crore ($161 million). The founders’ equity — the
stake held by him, his co-founder and some employees — was now worth . 328 crore. 
That morning, he became a father, and by the reckoning of some — particularly his
investors Info Edge and Sequoia Capital — the entrepreneur best positioned to build a
formidable global internet company out of India. Zomato, if you have not used it yet,
is a restaurant discovery website and mobile app. It lists information on restaurants —
menus, photos, reviews curated for credibility and contact info — for 180,500
restaurants in 36 cities. It is currently in 11 countries (including India) and plans to be
in 22 new countries in the next two years. The current round of funding is meant to
bankroll this expansion. It makes its money from ads restaurants place on their pages.
Restaurants advertise with Zomato because of better targeting. They can pay only to
be displayed when someone is searching for a location — ‘Colaba’, for instance —
and further narrow it to be displayed only for ‘take outs in Colaba’. Goyal says
revenues are now hitting . 3 crore each month — on an average, 35% of revenue is
from overseas markets. All the money comes from the website. They are yet to start
monetising the popular mobile app. Deepinder Goyal and Pankaj Chaddah started
Zomato (Foodiebay, in an earlier avatar) while still working as consultants at Bain &
Co in Delhi. By the latter half of 2009, the website gained some traction and user
feedback was excellent. Goyal decided to give it a good shot and quit his job the day
his wife, a Mathematics PhD, got a teaching job at Delhi University. Chaddah,
younger to Goyal by two years, followed a few days later. Even though they had both
attended IIT Delhi (Goyal studied math and computer science, Chaddah graduated in
mechanical engineering), they had only met at Bain. Both told their parents about
their decision to quit only after actually quitting — that way there was no room for
being talked out of it. 
Among Foodiebay’s growing throng of users was Sanjeev Bikhchandani, the founder
of Naukri.com. He liked the service. His company, Info Edge India Ltd, put in $1
million in seed funding early on, in August 2010. The company funded Zomato
through four subsequent rounds, cumulatively investing $25.4 million. It now owns a
50.1% stake in Zomato. 
Startup valuation is nearly as controversial as the Narendra Modi versus Rahul Gandhi
pitch in an election year. Unsurprisingly, there are some who think that Zomato’s
current valuation is completely unjustified. 
“It’s a completely cuckoo valuation. An investor who has entered will be looking to
exit at three times the valuation in a few years. Can Zomato get a valuation of . 3,000
crore in a few years? And who would the buyer be? Yelp? Would Yelp or someone
else pay half a billion dollars for a company that didn’t even make $2 million in the
latest fiscal? Perhaps, but only if the greater fool theory holds. I don’t think that's
likely though,” said Mahesh Murthy, an investor and outspoken critic of sky-high
valuations for other tech companies such as Flipkart. 
But there is no sure way of valuing a startup and big bets on companies with little
revenue have paid off on occasion. Zomato clocked revenue of . 11.5 crore for the
fiscal ended March 2013, up from . 2 crore the previous year. According to Goyal,
this year, it is expected to clock . 30-40 crore in sales. If you take . 11.5 crore as
revenue, Zomato’s valuation is a multiple of nearly 100 to sales. If you take the latest
monthly revenue and annualise it to assume revenue of . 40 crore during the current
fiscal, the valuation is a multiple of 25 to sales. 
“Young companies like Zomato don’t get valued solely based on revenue multiples,”
Mohit Bhatnagar, the Sequoia MD who handled the Zomato investment, told ET.
“The product is world class and we have conviction in the founders. Deepinder is
probably as good a founder as anyone anywhere in the world. It is the first Indian
consumer internet company with global aspirations and that is the single-biggest
excitement for us.” 
Goyal doesn’t have to worry about the debate over valuation just now. He says a 25x
valuation is par for the course for a fast-growing consumer internet company like his.
At any rate, he says he can grow the revenue manifold if he can expand his sales team.
“Our space utilisation is currently just 20%. We need to hire 400 sales people in India
alone to exploit our ad real estate.” 
He recognises that growth from India will likely plateau at some point. But then there
is the whole world, and then, the holy grail of the business — the US market. So far,
his international foray has been encouraging. In the UAE, where the company
launched last year, it is already profitable operationally. In most other markets, there
is no serious competition and the product is loved in every new market it launches in.
In Indonesia, Portugal and Turkey, Zomato speaks the local language. 
Zomato’s moment of reckoning will come when it comes head to head with Yelp, the
listing and recommendation service that is popular in the major western markets. Its
IPO last year valued Yelp at $1.5 billion. 
In the UK, where Yelp has been around for much longer, Zomato is now number 2. In
New Zealand, where Yelp is six months old and Zomato just two, according to Goyal,
Zomato gets more users than all of Yelp’s categories put together (While Zomato only
does restaurants, Yelp does local search and recommendations across categories). 
So he is confident of his product for all markets but the US. Zomato’s performance in
the US will determine whether it can hit the global big league or not. Revenue
potential in the US is bigger than the combined potential of all the 33 markets Zomato
plans to be in, put together. Goyal says the company will spend time fine-tuning the
product for a US launch. “We will probably also need to raise more money for a US
launch,” he said. Goyal is soft-spoken and unassuming. But when he speaks about his
business and his learnings, you get a glimpse into an unswerving focus and clarity of
thought that forms the philosophical core of Zomato’s growth. A couple of years ago,
the company expanded into two other verticals — ticketing for events and helping
restaurants market themselves through digital and social media platforms. “We started
doing everything badly. So then we decided to shut down those businesses and just
focus on the one thing users loved and do it very well,” Goyal says. But he also turned
necessity into a virtue. He used the staff that became redundant to expand overseas.
“It was not their fault that our strategy was poor. So, instead of letting them go for no
fault of theirs, we sent them to Dubai to grow our business there.” And that worked
for the company, proving that the product was ready for overseas markets. Goyal says
success hasn’t changed him or his co-founder significantly. “That comes with having
been friends first. We can yell at each other and it won’t really matter.”