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What does a $7 Billion valuation actually mean?

Mrigank Mukherjee
5 days ago
5 min read

You've probably seen the headline numbers with Hyundai Motor India listed at a valuation of roughly $19 billion, the largest IPO in Indian history. Swiggy followed soon after at around $11.3 billion.

When it comes to public perception, it’s quite simple: “Bigger number = better company!” So, if a company fails to achieve the high valuation it wanted, it’s likely in trouble, right? Well, not really.

Valuation is technically just simple math, where you take the price of one share and multiply it by the total number of shares a company has. In reality, it’s a much more complicated question of how much the investors of a company believe the company, including its assets, intellectual property, future cash flows, etc., is worth. Bigger valuations for companies mean that investors expect to generate higher returns. Valuation can either be performed in private deals (where an investor, such as a Venture Capital fund, invests in a company) or in the public market through an IPO.

Zepto, a quick commerce company, was one of the latest companies to move toward an IPO. They filed their papers with SEBI in June of 2026, seeking to raise Rs. 8010 crores. The IPO process, however, saw investors valuing them at a highly discounted price. The company wasn’t necessarily failing on paper, with revenue doubling while remaining debt-free and maintaining a healthy cash cushion, though, with a net loss that was roughly a quarter of revenue. So what actually led to the mismatch in valuation?

Valuation mismatches like Zepto’s rarely come down to one cause. Multiple factors like sector comparables, governance concerns probably played a role in Zepto’s mismatch. This piece focuses on the lens of how private and public investors differently price risks and returns. 


Who actually sets that price? The Herding/Informational Cascade Theory


In its initial years, a company usually raises money privately. A startup pitches its business to venture capital funds that invest in exchange for a stake in the company. The 2 sides come to an agreement on the company’s value. One company, one investor, one number, agreed upon privately.

Successful startups raise money repeatedly as they grow, with each round bringing in new investors at new, usually higher, valuations.

The Informational Cascade Theory (Bikhchandani, Hirshleifer & Welch, 1992), a narrower version of the famous herd behaviour or herd mentality, is what may occur when these private institutions value companies. The authors of this theory claim that, “An informational cascade occurs when it is optimal for an individual, having observed the actions of those ahead of him, to follow the behavior of the preceding individual without regard to his own information”. In this context, a Series B investor might make judgments based not only on private information but also on prior valuations from investors. New investors often anchor on the figure of the last round, and existing investors want to see the valuation only go higher since that means their investment is growing in value. Although information on private deals is hardly available, we can use the pattern of Zepto's valuations rising round-over-round to infer that investors might have become sheep, herding into decisions based on past actions.


Going Public – The Testing of the Private Valuation


Companies ride these successive waves of private funding until they're large enough and see enough growth to raise funds from the public through an IPO.

The most pivotal part of the IPO process is when the company goes on a roadshow, where investment bankers pitch the business to large institutional investors who submit bids on what they'll actually pay. It's the first moment a company's previously private valuation is tested by a wide set of buyers, which basically forms the “public” in the primary markets of an IPO.

This is exactly where Zepto ran into trouble.

Zepto was seeking to raise Rs. 8,010 crore, with its expected valuation implicitly anchored to the $7 billion mark set by its last private round, led by CalPERS, in October 2025. Post the roadshow, reports put domestic mutual fund (institutional investor) bids in the $2.3 billion range. That's a discount of up to 68% from the original ask. For a valuation built over three years of successive private rounds, each likely anchored to the last, the roadshow was likely the straw that broke the sheep’s back.

Rather than list at a fraction of its private valuation, Zepto pulled its IPO on August 1 and turned to a smaller private placement instead for roughly ₹1,000 crore, at a reset valuation of about $4.5 billion. Zepto has paused its IPO issue, with the CEO telling employees that the delay would be 1-2 quarters, with a relisting window being discussed in early to mid 2027.


The Private Market was wrong, and the Public Market has spoken. Is that it?


The Clientele Effect (Miller and Modigliani, 1961) is a theory that states that different policies attract different types of investors. The authors of this theory noted that retirees often loaded up on high-dividend stocks for steady income, whereas “younger accumulators” preferred low-payout shares that tend to reinvest their earnings into the company. To them, this showed that different investors have different needs and thus price assets differently.

The same logic from the theory can extend to Zepto's two valuations.

When a venture fund looks at Zepto, they're not impacted by losses today since VCs accept these risks and losses in the hopes of a bigger payout eventually. Losses are often seen as the expected or necessary cost of gaining market share to win a category outright. A domestic mutual fund manager, or an insurance company, however, has obligations to people who cannot afford to wait a decade for a payoff. Regulatory frameworks urge these institutions toward companies with visible cash generation, governance track records, and predictable earnings.

When Zepto's roadshow returned a disappointing valuation, that gap wasn't because private investors got it wrong eight months earlier. While the herding dynamic likely did push Zepto's private number higher, the public market's number isn't automatically "the truth" either. It's simply the price a different, more risk-constrained clientele (the public) was willing to pay for Zepto’s position. Not all companies may face the same magnitude of the problem.


What went wrong with Zepto?


The clientele mismatch explains why any loss-making, high-growth company faces this gap at IPO. It doesn't explain why Zepto hit it harder than Zomato or Swiggy did. All companies go through private funding followed by public funding. Several factors contributed to Zepto’s IPO pause.

When you look at other companies that IPO, most are profitable and stable, in contrast to Zepto, which is still loss-making and experiencing high growth through cash burn. Institutional investors tend to be biased toward the former. However, Swiggy and Zomato were both listed before the question of quick commerce profitability entered investors' minds. In fact, both companies IPO’d with annual losses (Zomato has since turned profitable, but Swiggy remains in losses). Zepto faces the pressure of competing against established rivals that have higher market share with diversified operations and have higher amounts of capital at their disposal. Zomato and Swiggy set the benchmark that Zepto has to now compete with.

Zepto didn’t fail. Its earlier valuation reflected how private investors naturally price off one another, and the public market is now pricing it on a different set of terms with a different appetite for risk. This case shows us that even if a company can’t attain a high valuation, it’s not a verdict on the business but a verdict on who priced it in the given circumstances.  

 

Sources :

5)     Bikhchandani, S., Hirshleifer, D., & Welch, I. (1992). A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades. Journal of Political Economy, 100(5), 992–1026. https://doi.org/10.1086/261849

9)     Miller, M. H., & Modigliani, F. (1961). Dividend Policy, Growth, and the Valuation of Shares. The Journal of Business, 34(4), 411–433. https://doi.org/10.1086/294442

11)  Annual Reports of both Swiggy and Zomato.

12)  Draft Red Herring Prospectus of Zepto.

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