Covid lockdown, a dining table and 2 determined teens: How Zepto was born

The Dubai-raised Stanford dropouts who started Zepto in Mumbai during the coronavirus pandemic have raised over $350 million from investors including American startup accelerator Y Combinator, Nexus Venture Partners and US healthcare consortium Kaiser Permanente.

The childhood friends—they have known each since they were eight—have been building products since their early teens.

The Germ

Palicha and Vohra were stuck in their Mumbai homes as the second wave of Covid-19 swept the country. The lockdown prevented them from going out and buying essentials.

Online grocery companies were taking three to four days to deliver the orders due to the restrictions. The teenagers sensed a gap they could plug.

Though they had secured seats in the computer science programme at the prestigious Stanford University in the US, they couldn’t fly out due to restrictions.

They decided to take a year off. “Both our parents were devastated and distraught,” says Palicha. “They couldn’t believe we were not joining Stanford, which was our dream university.”

The youngsters, however, were convinced there was a big business opportunity. They started KiranaKart, a grocery delivery platform, that got picked by Y Combinator to be a part of its winter 2021 cohort.

They were delivering groceries in under 45 minutes. Some of the customers, who lived close to the pick-up points, got their orders delivered in 15 minutes and they were the ones who kept coming back. So, they thought about a pivot—why not deliver groceries in under 10 minutes?

They took the plunge. Zepto—from zeptosecond, the smallest unit of time—was born with Palicha as the chief executive officer and Vohra as the chief technology officer.

According to consulting firm RedSeer, the quick commerce market in India is estimated to be worth $5.5 billion by 2025, growing 15 times from its current size.

They had raised their first round of capital from Y Combinator ($125,000) along with $90,000 from angel investors during the KiranaKart days. They used that money to launch Zepto.

Their market research found that larger assortments, better quality and faster deliveries were what the customers were looking at. They launched their service through a network of micro-distribution centres called dark stores. The key was to ensure that pickup points were close to population clusters in well-defined areas and to keep the average distance for delivery under 2 km.

Initially, some of the investors didn’t take them seriously. “We were young, had a bold idea, and were talking to investors twice our age. So, it was definitely an interesting learning experience for us and the investors on the other side of the table,” says Palicha.

“However, we were lucky to get introduced to a few thoughtful investors who built conviction after evaluating our key metrics. The sources of truth eventually are the numbers and the core criteria is trust.”

Early days

Palicha and Vohra needed a space to work on the idea. “Both of us decided to stay at my place in Mumbai,” Vohra says. “The house was mostly empty as my parents were in Dubai and our dining table became pretty much our office.”

They were up against big rivals but that didn’t worry them. They knew quick commerce was about short distances and not speed. Zepto’s average delivery distance from the pick-up point to the drop location is 1.7km. It takes under 2 minutes to pack the stuff and hand it over to the delivery partner. They try to do this even faster, sometimes completing the task in 60 seconds.

The rider then has to deliver the order in approximately 8 minutes during which he has to cover the 1.7km. That’s how’s the 10-minute model works.

“Legacy platforms struggle on this count. Their delivery partners have to travel longer distances,” says Palicha, who counts Zepto’s supply chain rigour as a key advantage.

They realise that smaller cities and towns have tremendous potential. “If you look at the dynamics that exist in tier 2/3 cities there is a lower propensity to pay but that’s fine as my cost structures in order of magnitude are lower,” says Palicha.

Let’s say the customer isn’t willing to pay Rs 20-30 as the delivery fee but the last-mile cost is probably Rs 25 lower. The cost of packing orders is Rs 10 lower and the transportation costs, too, are low compared to rivals.

The backstory

Palicha and Vohra took to building software products very early. While Palicha’s father is in the wealth management space, he started his career as a programmer. His mother is a recruiter in the banking and financial space.

Vohra’s father is a marine engineer and his mother is a dentist. Their parents moved into the same circle. They went camping and hung out together. The boys, too, bonded well.

Growing up in Dubai, building a tech company in India was not on the radar. Their interest in technology was largely organic but their worldview wasn’t much different from any other Indian teenager.

“We went to an Indian school, followed an Indian curriculum (ICSE) and our friends were largely Indian. So, it was pretty much like growing up in Mumbai effectively,” says Vohra.

It was when it got to know about the Y-Combinator start-up school programme they realised they could make a career out of building software products, which was their passion.

The road ahead

Their success at an early age has made Palicha and Vohra the new poster boys of the “Sharmaji ka beta” syndrome that plagues most Indian families. Parents now benchmark their children against the Zepto founders, if social-media memes are anything to go by.

Palicha laughs it off. “It’s funny to hear these stories. In general, our core friend group has been super supportive. Most times when we all meet, we try to keep Zepto out of the conversation. It’s a bit insane that we are now running this big company and just a few years back we were in school,” he says. “I have to tell you that even to this day we don’t care about the money or the recognition too much. The valuation wasn’t what gave us fulfilment,” says Vohra.

The plan is to drive growth rates while continuing to have a hold on unit economics, while also growing in new markets. Zepto raised $200 million just six months ago, so there is enough cash for the short to medium-term.

“The competitors that we have in the market have much more cash and the only reason we have gone on to achieve comparable scales in a short period of time with a fraction of the capital is because of our capital efficiency,” says Palicha.

Now, all of a sudden many of the competitors don’t have the kind of capital they once had, with the funding winter settling in. “That’s the competitive muscle that we can flex now,” he adds.