Profits delivered: What Zomato’s sizzling results teach investors, VCs

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₹175 crore for the quarter ending March, which was a 27% sequential growth over the previous quarter. The revenue growth of 8.3% was less than a third of the growth in profitability, which means that the levers of profitability are being unlocked. These are important indicators not just for Zomato but for the entire venture capital (VC) funded start-up ecosystem.

The year 2021 was seen as the coming of age of startups that were part of a new wave of India’s consumer internet era. A small cohort of these startups, that had broken out into the big league, filed for initial public offerings (IPOs), and listed on the exchanges. Built and scaled with unprecedented amounts of capital, the series of back-to-back IPOs that were enthusiastically received by the markets were proof that this funding model had worked, despite being viewed by the purists with some degree of scepticism.

However, as shareholders began losing money in the aftermath of the listing, the debate on whether startups without a stable revenue model and profits should have been allowed to even list in the first place came up from time to time. Cut to this year, the gap between the winners and the laggards is now evident and has begun to resemble the last lap of a marathon. There are some lessons that emerge from the post-IPO journeys of some of these startups, as well as from IPOs that were planned but put off in the eleventh hour.

All the startups that listed in 2021, without exception, were playing in the kind of markets that the VCs love—large total addressable market (TAM). While a large TAM is a prerequisite for building a big company, it isn’t a sufficient condition. Many other factors—like some form of a real network effect or just simply the extent of