Zepto's 16% Yield Deal: A Risky Gamble for IPO Readiness?

Indian quick commerce startup Zepto has pulled off a bold financial maneuver: securing a Rs 1,500 crore ($175 million) structured debt deal at a minimum 16% yield, with potential returns of up to 18% for lenders. The move aims to boost domestic ownership ahead of its planned IPO, but it also raises critical questions about risk tolerance in a sector rife with burn rates and regulatory hurdles.

The Deal’s Mechanics: High Yields, High Stakes

The loan is underwritten by Edelweiss Alternative Asset Management (committing 50%) and family offices/credit funds, secured by the founders’ personal equity stakes—a rare move for high-growth tech firms. The three-year debt carries a 16% fixed rate, with an equity-linked kicker that could push total returns to 18%. The funds will allow founders Aadit Palicha and Kaivalya Vohra to buy shares from foreign investors, increasing their combined stake from 18% to 20% and pushing domestic ownership above 30%.

Regulatory Compliance: Navigating India’s FDI Rules

The transaction is as much about compliance as it is about capital. India’s Foreign Direct Investment (FDI) rules prohibit foreign ownership in inventory-driven e-commerce firms unless the company meets the “Indian Owned and Controlled Company” (IOCC) criteria—50% domestic ownership. Zepto’s move, coupled with a $250 million secondary sale led by Motilal Oswal, aims to push total Indian ownership close to 50%, a legal lifeline for its IPO ambitions.

The Bigger Picture: Quick Commerce’s Burn Rates and Valuation Pressures

The deal underscores the challenges of Zepto’s sector. Quick commerce (or “q-commerce”) players like Blinkit (Zomato), Swiggy Instamart, and Zepto face monthly cash burns of Rs 1,300–1,500 crore, even as they chase scale. Zepto’s annualized gross order value (GOV) hit $4 billion in early 2025, a 300% year-on-year jump, but its $5 billion valuation—a steep drop from its 2022 peak of $8 billion—reflects investor skepticism toward unprofitable growth.

Risks in the Rearview Mirror: Precedents and Defaults

Promoter-level debt isn’t new in Indian tech—Byju’s defaulted on a similar loan, and PharmEasy’s valuation collapsed by over 90%. Zepto’s founders are betting their equity stakes can withstand the pressure, but if cash flows falter, the collateral (their shares) could become a liability.

The Bottom Line: High Yield, High Risk

Zepto’s 16% yield offers lenders a rare opportunity in a low-yield world, but investors must weigh the risks:
- Regulatory success: Can Zepto hit the 50% Indian ownership threshold?
- Profitability: Will it achieve its 2025 targets—50% reduction in EBITDA losses and cash-flow breakeven?
- Sector dynamics: Can it outlast rivals in a market where burn rates outpace revenue growth?

The math is stark: At a $5 billion valuation, Zepto’s debt-to-equity ratio balloons if equity stakes are pledged as collateral. Meanwhile, its GOV growth—while impressive—hasn’t translated to profitability yet.

Conclusion: A Tightrope Walk to IPO

Zepto’s structured deal is a calculated gamble. On one hand, it secures domestic ownership, potentially unlocking an IPO and easing regulatory concerns. On the other, it locks founders into a high-interest obligation at a time when q-commerce’s fundamentals remain shaky.

The numbers tell the story:
- $5 billion valuation: A 37.5% drop from its peak, signaling investor wariness.
- $1.5 billion annual cash burn (at current rates): A daunting hurdle for a company targeting breakeven.
- 18% potential returns for lenders: A lucrative carrot, but only if Zepto’s IPO materializes.

For now, the deal keeps the company afloat—but survival hinges on whether it can turn rapid growth into sustainable profit. The clock is ticking.

In the end, Zepto’s 16% yield isn’t just about attracting capital. It’s about buying time—a risky bet in a sector where time is often the first thing to run out.