Deepinder Goyal, founder and CEO, Zomato, shares a great working relationship with investor Sanjeev Bikhchandani of Info Edge for one simple reason: Bikhchandani is more entrepreneur, less investor. And the two of them understand the key fundamental of running a consumer Internet business, bring in the users first, the money will follow soon after
As an entrepreneur, you know your startup has arrived when your brand becomes the generic for its space. “I am building the Zomato for discovery of doctors,” says one entrepreneur. The headline of a blog reads: “Building the Zomato for shopping.” What does it mean to Brand Zomato when something like this happens? It is a clear indication that the startup has managed to establish clarity on what it does and, more importantly, has built a widely recognised, inspirational brand.
It is Zomato’s laser-like focus on doing just one thing – search and discovery of restaurants – that has catapulted this consumer Internet company to global fame. The company, founded by Deepinder Goyal and Pankaj Chaddah, recently raised a Series-D US $37 million from Sequoia Capital and Info Edge, the Sanjeev Bikhchandani-led company that has invested four rounds in the company prior to this latest round and is its majority shareholder. Zomato currently runs operations in 41 cities in 12 countries around the world. To convey his thought process, Goyal simply says, “I think it is easier to have one product and take it to many different markets, rather than create multiple products or services.”
After raising this latest round in November 2013, Zomato announced that it aims to expand into 21 countries over the next two years (on an average, it starts up operations in one new city every month). Experts believe that the reason for Zomato’s growth, at breakneck pace, is the ability of its entire team to simply execute. A key part of Zomato’s operations is its feet-on-street team that updates menus and other restaurant-specific information in addition to selling digital ads to restaurant owners. It relies on user-generated-content for its reviews and ratings. The other aspect is its process-oriented approach to launching in a new market, with a clear focus on a path to breakeven.
In this article, we capture the Zomato journey from two perspectives. Sanjeev Bikhchandani, founder and executive vice-chairman, Info Edge, talks about how Info Edge spotted the company, the advantages of corporate venture capital and what he would like to see Zomato evolve into, while Goyal focuses on the product development approach, his learnings from Info Edge and how he has evolved as a person since founding the company.
Last month, Zomato unveiled its new product (an overhaul of Zomato.com) with additional features and a few fundamental changes to how its users could discover places to eat out. Goyal, in a blog post, mentioned that the change was triggered by feedback from users. “We spoke to a lot of people who used Zomato regularly, to understand how they use the site. More importantly, we also asked them what they dislike about it,” he wrote.
The revamped Zomato now includes several changes – restaurant search takes lesser time, users can maintain a food journal, the methodology for reviews has changed and the biggest of them all, an inclusion of a social recommendation engine for restaurants. Goyal, to emphasise on his brand positioning, says, “We’re still deeply focused on helping people discover places to eat, but the way we’re doing it has changed. In the new product, we also give you recommendations from your social network.”
We quizzed Bikhchandani for his reactions when this change was being contemplated and he says, “Look, Deepinder and his team know more about products than anyone else on the board. The board got informed and got comfortable. The way we approach such large changes is that we’re aware that any big change has risks. But, it is important to understand what these risks are, early on. We simply want to avoid negative surprises.”
Advantage, corporate venture capital
Overall, Info Edge adopts a similar low touch approach with all its portfolio companies. It invests from its balance sheet with a strategic intent to compliment its core businesses. Till date, the company has made nine investments and written off three (see box). If the entrepreneur is comfortable, it goes on to continuously invest and become a majority shareholder, something it has done with its investments in Zomato and MeritNation.com, an online education venture.
Bikhchandani says, “The biggest advantage we bring to the table is that our capital is patient. If you look at the time it takes to build a reasonably large consumer Internet company and go public, it is about 10 years. So patient capital is crucial in this space.” He has a point. After all, the two consumer Internet companies that have recently gone public – MakeMyTrip and JustDial – have taken 10 years and 15 years, respectively, from the startup date. Info Edge itself took about 6.5 years after the first round of funding and 9.5 years after launching Naukri.com, to go public.
Zomato’s Goyal is also glad he raised money from Bikhchandani. “It was a no brainer for us, considering the experience Info Edge brought to the table. Had we raised the earlier rounds from pure venture capital investors, we would have to start thinking about exits already. But, we’re just getting started on our growth path,” he says.
Goyal admits that one of key lessons he learnt from Info Edge was to focus on sales right from the early days. “From day one, we were not only going after product development and users, but also revenues. The bootstrapping culture is something we learnt from Sanjeev.”
Several entrepreneurs who have raised money from Info Edge (we’ve interviewed five of them in The Smart CEO) vouch for the value addition offered by Bikhchandani and his team. “Our entrepreneurs are always welcome to tap into the expertise – be it in sales force development or analytics, from Naukri.com or any of our other businesses,” says Bikhchandani. However, he’s quick to add, “Our involvement in our investee companies is less than 2 per cent. While we can share whatever knowledge we’ve gathered over the years, it is the entrepreneur who has to call the shots. We hardly interfere unless it is a governance or compliance issue.”
On the other hand, entrepreneurs also need to understand the disadvantages of raising money from an operating company that is publicly listed. As a listed company, one has to report to the stock market when it writes off an investment and this can certainly hurt sentiments attached to the investee company, which can hamper its future growth prospects. However, as a publicly listed company with good corporate governance, it is the responsibility of Info Edge to report any such write offs. As an entrepreneur looking to raise capital from listed entities like Info Edge, it is crucial to understand both the pros and the cons, before taking a call.
In the founding days of Zomato (then called Foodie Bay), Bikhchandani came across the site as a user. Bikhchandani says, “The good thing about Zomato is that they had traction even before raising money. I first heard about it from my son, who is a bit of a foodie. One day, Hitesh Oberoi, (MD and CEO of Info Edge) asked me if we should consider this company for investment. I said, why not?” Soon, Bikhchandani shot a mail to Goyal introducing himself and checked if he was looking for an investor.
The founders of Zomato jumped at the opportunity. Bikhchandani says, “At that point of time, I think Deepinder had a term sheet to raise US $0.5 million. I told him, you will probably run out of money in six months. At least raise a million dollars.” Goyal adds, “We jumped at the offer,” adding tongue-in-cheek, “one million sounded better than a half.” Zomato closed its first round of funding (of Rs. 4.5 crore) in August 2010.
Over the next year, Zomato had tremendous traction both in terms of number of users and ads from restaurant operators. This was enough to attract a second round of funding from Info Edge to the tune of Rs. 13.5 crore in September 2011. By January 2012, the company had over 3 million people visiting its site (which then listed 18,000 restaurants) every month.
There is one aspect that Zomato experimented with in December 2011. Several restaurant operators approached Zomato, to help them sell New Year tickets. The website sold Rs. 8 crore worth of tickets out of an inventory of Rs. 16 crore. However, there were a few issues related to this; some restaurants did not keep up their promises on the event agenda and internally, several members of team Zomato had to shift their to focus to serving the events business. Deepinder says, “It was a learning experience. We decided to shut this down, simply because we wanted to own restaurant search and discovery.” With the benefit of hindsight, one can now say the move has paid off and the proof is in the numbers.
Over the next two years, Zomato grew rapidly. From 18,000 restaurants in January 2012, it now lists over 2,27,100 restaurants in 41 cities (in 12 countries) serving 16 million foodies every month. If there is a major skill that it has picked up over the last year or so, it is the ability to enter new markets in a methodical fashion. Zomato uses a combination of Indian employees and local staff while launching in new markets. Goyal says, “It is an important mix. The Indian folks bring in the business model of Zomato; the local team helps with understanding the culture. Eventually, the Indian team moves out and the locals run the operations.”
Bikhchandani adds, “I believe Zomato has hit upon a very good model. The new cities in the international markets are somewhat playing out like it did in India and the UAE. There is a clear path to breakeven in 15 months or so. Today, more than half our revenues come from outside India so we can safely say it is a truly global company.”
On the product development front, a focus area is its mobile app development. Fairly obviously, people are often on the move while discovering places to eat out, so a mobile strategy becomes that much more important. By February 2014, Zomato had over 2.5 million downloads for its apps, proof that its mobile strategy is moving in the right direction.
When asked about the key metrics measured at Zomato, Goyal responds with what is now a near-cliché. “Users, revenue and happiness of our people and customers are the only three metrics we track,” he says. Keeping user experience in mind, Goyal is very particular not to outsource any of its crucial processes. What has worked in favour of Zomato is its ability to attract the right talent. “It is all about getting the right people on board, who are hungry to do things. As a team, we’re willing to take more risks,” adds Goyal, on how nimbleness is at the center of Zomato’s execution strategy.
Recently, Zomato has also adopted non-traditional approaches to hire people. For example, to bolster its engineering team, Zomato invited coders to join the company for a trial week, when they would work on live projects at the company’s headquarters in Delhi. The company believes this is a better way to gauge one’s technology skills, rather than a traditional interview. Of course, Zomato’s brand image has helped it attract people who are willing to go the extra mile to get the opportunity to work for the company.
The company has also launched a fairly structured leadership hiring strategy, attracting people with entrepreneurial experience to lead new businesses. Out of the total strength of over 650 people across geographies, the company has given ESOPs to over 15 per cent of its staff. Given its recent US $37 million round of funding, the team size is expected to grow exponentially and a strong brand coupled with the opportunity to scale up a fairly young company will stand in good stead.
Goyal, who still chats with Bikhchandani on a regular basis for advice, says, he has evolved as an entrepreneur over the years. With the finesse of a philosopher, he says, “The things that you worry about the most today, are things that won’t matter in the future. Everything will pass – the good things will go, the bad things will go as well.” Goyal, who loves his food, has now helped over 16 million people from around world discover places to eat – to borrow a line from Zomato’s website – one plate at a time. And he’s just getting started.
Bikhchandani sums up, in typical investor fashion, “Scale, high growth, profitability and high EBIT are the four key aspects to the future of Zomato.”
Info Edge’s Sanjeev Bikhchandani on Corporate Venture Capital
One aspect the various companies we’ve invested in like about us is that we have a lot of respect for entrepreneurs and we understand his/her fears and concerns and the risks he/she has taken. This manifests into a number of things we do on a daily basis.
We don’t over interfere. We understand very well that a company succeeds because of the entrepreneur and the team and not the investor. Our involvement is less than 2 percent.
Our entrepreneurs are always welcome to tap into the knowledge present in our teams/core businesses.
We’ve built a company in this space, scaled it up and taken it public. We know what it takes and one of the key aspects here is patience. Since we invest money from our balance sheet, we’re not in a hurry to exit and this, I believe, is important in the consumer Internet space.
One of the key lessons we’ve learnt over the years of investing in startups is that we need to see enough companies to judge good from bad. We’ve seen about 400 companies to invest in 9. Out of these, 6 are still running and it is not a bad ratio.
The two questions we always ask ourselves are: One, would I invest my personal cash in this business? Two, if I were the entrepreneur, how would I do this?
Total funding raised
Over US $53 million, including the latest round of US $37 million from Sequoia Capital and Info Edge.
No of people
41 cities across 12 countries
Future international foray
21 countries in the coming 2 years
Monthly unique visitors
Global traffic: 16 million visits a month
Avg. CPM rates
With multiple advertising options available on Zomato there are different charges for different banner slots.
INFO EDGE’S STARTUP INVESTMENTS TILL DATE
PARTLY OWNED SUBSIDIARY
Search and discovery of restaurants
India’s largest education portal for Classes 1 to 12
Portal to compare financial products like life insurance, general insurance, loans and credit cards
A discount coupon site
Online Photography Company offering professional photographers with printed products and e-commerce solutions
Designs and sells fun, quirky creative products
*Note: Investments in three companies – 99Labels, StudyPlaces and Floost – have been written off.
As of March 31st, 2013, Info Edge had consolidated operating revenue of Rs. 107.78 crore from these 6 investee companies. Out of this, Rs. 11.3 crore came from Zomato and Rs. 9.8 crore came from Meritnation. Please note that these are operating revenue numbers and not total revenue numbers.