FreshToHome raises $104 million led by Amazon’s Smbhav Venture Fund

FreshToHome co-founder and CEO Shan Kadavil

FreshToHome, the Bengaluru-based fresh fish and meat retailer, raised $104 million in a Series D funding round, making it one of the largest funding rounds in the last 12 months as startups grapple with the funding winter when capital is hard to come by.

The company also said that it was operationally profitable, terming itself a ‘proficorn’.

The round was led by the Amazon Smbhav Venture Fund and saw the participation of existing investors, including Iron Pillar, Investcorp, Investment Corporation of Dubai, Ascent Capital and others. New investors, who joined in this round of fundraising are E20 Investment Ltd, Mount Judi Ventures and Dallah Albaraka.

The latest fundraising comes two years after its Series C round when the startup raised $121 million.

Speaking to Moneycontrol, Co-founder and Chief Executive Officer Shan Kadavil did not disclose the valuation at which the round was raised, but said the valuation for Series D was more than double what it was when it raised Series C.

“We’ve grown about 10x in the last three or four years. Last year, we’ve seen sustainable 30-40 percent of growth, which is a great number too. We’ve also seen bottom lines growing quite rapidly. The latter is really what enabled us to do one of the largest fundraisers in Indian consumer tech. Now while it is lower than Series C, we are only raising as much money as we need. There’s no point raising more money than you require,” Kadavil said.

He said it was the focus on profitability, which helped them raise this round even amid a tough macroeconomic environment.

“It is believed that value is when you get an exit, or you get a return on the capital that you’ve invested that because the public markets have corrected themselves will be based on your profitability pool or gross margins or some other metric, not just the top line. With that, we shifted gears quite early on. That’s one of the key things that we build a company on which is really that we need at least a 40 percent gross margin stack between sourcing to selling,” Kadavil said.

The CEO said that the company is at $130 million (Rs 1,100 crore) in annualised revenue.

FreshToHome is currently operating in 153 cities in India and in seven locations in the United Arab Emirates (UAE).

Uses for capital

With the money that the company has raised, it plans three uses for the capital: to invest more into 100 cities out of the 160 cities it is present in as they entered these locations in the last 18 months, to expand into Saudi Arabia, which is the largest market in the Gulf Cooperation Council (GCC), and to expand its omni channel network.

“There’s a fair amount of investment in deepening our roots in these 100 cities — increasing the revenues, getting them to a larger roadmap, that’s a key part of the use of capital,” Kadavil said. He added that the UAE market has worked well for the company after it entered two years ago, and it now derives 15 percent of its revenues from there.

“In the last 12 months, we’ve launched 30 stores in Bengaluru and these are doing very well. From a revenue standpoint, it’s not material because our online revenues are quite large. But, from a new user and acquisition standpoint, we’ve seen about 20 percent of our new users in Bangalore are now coming from these 30 stores. That’s a very interesting metric for a company that’s scaled in a mature market like Bengaluru, and that’s a playbook for us to replicate,” the co-founder said.

Kadavil said each city they are present in has 20-30 micro fulfilment hubs from where it dispatches to customers, and it is these dark stores, which will be converted to retail stores. Over the next year, the company plans to open 100 retail stores in all major metros.

It also plans to increase manpower at mid-management levels and will primarily hire on the operations side.

On profitability

The company is operationally profitable, and Kadavil says profitability is not far off. “The gap there is purely our overheads, which is our management costs or engineering costs, and so on,” he said. “The gap between our operational profitability and our EBITDA profitability is not very high.”

The company is also aiming to go for an initial public offering (IPO) in two to three years.

Post-Covid growth

At a time when there are concerns about a slowdown in the growth of delivery companies after a pandemic-fuelled surge, Kadavil says the pace of growth has gone down but it continues to be healthy.

The growth is 40-50 percent on a year-on-year (YoY) basis, a very high base, as opposed to pandemic growth which was high on a lower base, he said.

“You look at organised players like supermarkets, we’re really talking about — in my opinion — about $750-800 million revenue levels, versus a $50 billion overall market size. It’s less than 1 percent of the market. So there is still a 99 percent possibility. Offline is a very entrenched buying habit. So it’s both an opportunity and a challenge. And that’s the reason why a key use of our capital is to go omni channel, to figure out how to give consumers a really good buying experience offline, and then convert them online. We’re beginning to see the proof point of that. Pace has come down, but it’s still a very viable, large, vibrant market,” he added.