Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Mercor and Zepto Reveal the New IPO Valuation Games
Transcript
- Lucas: Luna, it's a weird moment for IPO filings. Two big ones crossed my desk this morning from TechCrunch and they could not be more different in tone. One is Zepto, the Indian quick-commerce company — hypergrowth, huge losses, valuation question mark. The other is Mercor, the AI hiring platform, and its founder is literally accusing Sequoia of what he calls 'dual-pricing' valuation tricks. Luna: Dual-pricing — that's a new one on me. Is that like charging different LPs different prices for the same round? Lucas: Close. The allegation is that Sequoia told Mercor's founder, Brendan Foody, they'd price the round at one valuation — say, an eight-billion-dollar cap — but then turned around and offered different terms to later investors, effectively diluting the founder's stake without telling him upfront. Foody went public with it, which is almost unheard of. Founders don't normally pick fights with their biggest VC two weeks before an IPO. Luna: Right, because you're about to need those same VCs to be your anchor investors. So either he's burning a bridge he thinks he doesn't need, or he's got another path to liquidity. Lucas: Exactly. And that's the thread I want to pull on today. Both Zepto and Mercor are filing to go public, but the mechanisms they're using to protect founder value — or in Mercor's case, to claw back value they think was taken — tell us a lot about where power sits in the IPO pipeline right now. Luna: Let's start with Zepto. The headline number is that they grew 170 percent year-over-year. That's wild for a company that's, what, four years old? Lucas: Zepto was founded in 2021 during the pandemic quick-commerce boom in India. They do ten-minute grocery delivery in major cities. The filing showed revenue of roughly $1.2 billion for the fiscal year ending March 2026, up from about $440 million the year before. But here's the rub: losses also widened to $180 million, up from $120 million. So the growth is real, but so is the cash burn. Luna: And the market is asking for a valuation that reflects the growth, not the losses. The TechCrunch piece said the valuation question 'nobody's answered yet' — what's your guess on where it lands? Lucas: If you look at comparable public companies in India — Zomato, Swiggy — they trade at revenue multiples somewhere between 4x and 8x. Zepto is in a faster-growing niche, but at $1.2 billion in revenue, an 8x multiple would put them at roughly $9.6 billion. Their last private round was at about $5 billion. So the IPO could be a significant step-up, but only if investors buy the story that the losses are temporary. Luna: Which is exactly the kind of tension that leads to earnouts and secondary sales — the things we've been talking about in previous episodes. Founders want to lock in a high valuation now, but the market wants to see sustained profitability before paying up. Lucas: Right. And Zepto's filing does include a provision for secondary sales by existing investors — not just the company selling new shares. That's a liquidity event for early backers. But the founder, Aadit Palicha, is only 23 years old. He's not cashing out. He's doubling down. Luna: That's unusual for someone that young with that much paper wealth. Most 23-year-olds would take at least some chips off the table. Lucas: The thing is, Mercor tells a different story about founder power. Brendan Foody is also in his twenties — Mercor is an AI hiring platform that uses AI to evaluate candidates, founded in 2022. They raised a lot of money fast. And according to Foody, Sequoia used its position to effectively lower the cost of capital for later investors while keeping the headline valuation high. That's the dual-pricing claim. Luna: So if you're a founder watching this, what do you do? You can't exactly fire your lead investor three months before your IPO. Lucas: You can go public with the complaint, which is what Foody did. He posted a detailed thread on X. He said Sequoia offered one set of terms to a sovereign wealth fund — a lower valuation with better liquidation preferences — while telling him the round was done at a higher number. If true, that's a classic information asymmetry problem. The founder is kept in the dark while the VC negotiates separate deals. Luna: And the SEC filing for an IPO would theoretically expose all that, right? Because you have to disclose all material terms. Lucas: Exactly. And that's probably why Foody felt he had leverage to speak up. Once you file an S-1, the SEC will ask for every side letter, every preferential deal. So Sequoia's alleged dual-pricing would come to light anyway. Foody might be getting ahead of the story, framing it as a founder fighting for transparency rather than a VC overreach. Luna: It's a smart move if the facts are on his side. But it also signals that the founder vc relationship is fraying in the late-stage market. We've seen this before — when the IPO window opens, the incentives diverge. VCs want to maximize fund returns, founders want to maximize personal upside and control. Lucas: And that's where earnouts and secondary sales become tools to bridge the gap. We talked about earnouts in episode 38, but Mercor's case highlights a different kind of earnout: a reputational earnout. Foody is essentially saying, 'If you screw me on valuation now, I'll embarrass you in public.' That's a new form of leverage for founders. Luna: I want to go back to Zepto for a second. Their filing also showed that they're using a variable-interest entity structure, which is common for Chinese companies but less so for Indian ones. That could raise governance questions for U.S. investors. Lucas: Good catch. The VIE structure is typically used to comply with foreign ownership restrictions. In India, there's no such restriction for e-commerce, but Zepto might be using it to align with local regulations on data localization or something similar. It's worth watching because U.S. investors have been burned by VIEs before — think of the Chinese ADR crackdown a few years ago. Luna: So both of these IPOs have structural complexity. Zepto has the VIE, Mercor has the dual-pricing feud. Neither is a straightforward 'growth story, clean cap table, let's price it' deal. Lucas: And that's why I think the next six months are going to be a test of the IPO market's maturity. If these two deals price well, it signals that the market can handle complexity. If they struggle, founders might go back to direct listings or even SPACs. Luna: Before we go further — and this is loosely related — I know a lot of our listeners are founders or operators themselves. If you're building something and these conversations help you think about your own exit strategy, consider supporting the show. It keeps us ad-free and independent. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, we don't run ads, so listener support is what keeps the lights on. Even a small contribution helps us keep drilling into these details. Now, back to Zepto — one more number I want to highlight. Their filing shows that the top five investors hold about 65 percent of the company. That's a very concentrated cap table for a company going public. Luna: That means the founder has limited control unless he has special voting rights. Did the filing mention dual-class shares? Lucas: It did. Zepto is planning a dual-class structure where Class B shares have ten votes per share, and those are held by the founder and some early investors. So Aadit Palicha will control roughly 45 percent of the voting power even though he owns maybe 12 percent of the equity. That's a classic Silicon Valley move to preserve founder control post ipo. Luna: And Mercor? Same structure? Lucas: Mercor's filing isn't public yet — they just announced their intention to file. But given Foody's combative stance, I'd bet he's pushing for super-voting shares too. The dual-pricing controversy might actually strengthen his hand because he can say, 'Look, Sequoia already tried to take advantage of me; I need these protections.' Luna: So the through-line here is that founders are using every tool available — dual-class shares, public shaming, secondary sales, earnouts — to maintain control of their liquidity event. The IPO isn't just a financing event anymore; it's a negotiation about power. Lucas: Exactly. And the data from this week's market action reinforces that urgency. Look at the broader tech sell-off: Apple down 4.3 percent in five days, Microsoft down 6.7 percent, NVIDIA down 6.3 percent. The macro environment is choppy. If you're going to go public, you want to lock in terms before the window closes. Luna: That's a good point. Zepto and Mercor are both rushing to file now, in June 2026, because they're seeing the volatility in public markets. They want to get their S-1 on file so they can time the actual offering when the market stabilizes. Lucas: Right. And that's actually a smart strategy. You can file, then wait up to a year before pricing. So even if the next few months are rocky, you've got the flexibility to pull the trigger when conditions improve. That's another lesson for founders: file early, price late. Luna: One more thing on Zepto — their growth rate of 170 percent is impressive, but quick-commerce in India is incredibly competitive. Blinkit, Swiggy's Instamart, and Amazon's rapid delivery are all fighting for the same customers. Can Zepto sustain that growth? Lucas: The filing shows they're expanding to new cities and adding categories beyond groceries — electronics, over-the-counter medicine. But the unit economics are still negative. Their contribution margin was negative 8 percent last quarter. So the growth is being subsidized by venture capital. At some point, they need to turn that around. Luna: And that's the story the market will be watching. For Mercor, it's more about trust and governance. Two different IPOs, two different sets of risks. Lucas: I think that's the takeaway for founders listening: know which category you fall into. If you're a hypergrowth story with negative margins, your IPO narrative has to be about scale and path to profitability. If you're a tech platform with governance controversies, your narrative has to be about transparency and founder alignment. Luna: And either way, get your paperwork in order. Because the SEC and the public markets are going to dig deeper than any VC ever did. Lucas: Especially in this environment. With the S&P 500 down, investors are more discerning. They're not just buying growth stories — they're buying stories they can trust. And trust is exactly what Mercor is trying to reclaim. Luna: Alright, next week we're going to look at a completely different exit path — we've got a founder who used a roll-up strategy to create a liquidity event without an IPO. Stay tuned. Lucas: That sounds like a good one. Until then, keep building.