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Restaurant aggregator and food delivery service Zomato recently had a successful IPO launch wherein it had 38 times as many bids as there were shares available. The event saw the company raise $1.3 billion. It may come as a surprise then that Zomato’s co-founder Gaurav Gupta handed in his resignation a mere two months after the IPO.

Gupta, who is an alumnus of both IIM and IIT, started working at Zomato back in 2015 as the business head of table reservations. By 2018, he rose through the ranks to become the company’s chief operating officer before being made a co-founder in 2019. Zomato runs a program called the ‘Zomato Founder Program’ that rewards its employees with the title of co-founder if they display ‘a founders mindset’.

Gupta had many plans for Zomato’s expansion which included grocery delivery and ‘nutraceuticals’ (food products with health or medical benefits). He also wanted to take the company overseas, but unfortunately, none of these ideas worked out. Zomato announced the closing down of its grocery delivery and nutraceutical operations only a few days before Gupta announced his resignation.

It is also rumoured that Gupta fell out with Zomato’s CEO Deepinder Goyal, who owns a 4.7% stake in the company, and this contributed to his eventual departure. Considering that he was the face of the company and also lead discussions with investors and the media, his exit was bound to have an effect on Zomato’s stock price. Resultantly, Zomato’s share price dipped by 2% on the 14th of September. Gupta was not classified as ‘key management personnel’ in Zomato, and as such his departure wasn’t notified to the stock exchanges. According to the Companies Act, 2013, only changes in key management personnel are required to be disclosed. The fact that the share prices fell only by 2% might be explained by this detail

Mint - Zomato clears air on not informing exchanges about co-founder Gaurav Gupta's exit

Gupta’s exit immediately following his company’s IPO is not an anomaly in the tech world. During the DotCom bubble in the early 2000s, a lot of tech companies had launched their IPOs with many achieving enormous success. This led to certain adverse outcomes for the companies in question. What they found was that many employees, who already had a stake in the company, suddenly became tremendously wealthy. IPOs were therefore celebrated as reaching the ‘finish line’, which then caused employees to relax to a point where their productivity suffered.

There were also issues with workplace harmony as it wasn’t every employee who benefited from the IPO launch, only those who owned a stake. This resulted in huge disparities between colleagues overnight, which invariably had an effect on corporate culture.

When Google launched its IPO in 2004, it found it difficult to retain many of its employees as they had reached a point of financial security that allowed them to not have to work anymore. Tech companies routinely experience a loss in momentum immediately after this kind of success. In fact, there have been many instances where companies end up shutting down because employees quit en masse.

This is not to say that Zomato is bound to end up with a similar fate, as Gupta’s exit seems to have multiple factors that have influenced it. Since the effects of an IPO on a company have been observed over a two-decade period, it is likely that many companies today make sure they and their employees are prepared for what is to come. Workshops and discussions are usually held with workers to explain to them how things are likely going to change, and why it is important for them to stay focused on their work.

The tech industry as a whole also places more focus on its employees satisfaction than most other industries. This helps soften the blow that an IPO might have, as people may not be desperate to quit their jobs at the first opportunity.

For feedback, write to pavan@bclindia.in

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