Zepto, a 10 -minute grocery delivery app, raises $200 million at a valuation of $900 million

Zepto, a 10-minute grocery delivery app, has raised $200 million in its Series D round of funding at a valuation of $900 million, signifying investor confidence amid a slowdown in startup funding, and giving it ammunition to compete against larger rivals such as Swiggy, Dunzo, and BigBasket.

The round was led by Y Combinator Continuity along with Kaiser Permanente. Existing investors including Nexus Venture Partners, Glade Brook Capital, and Lachy Groom, also increased their investments. Last December, the startup had raised $100 million led by YC Continuity for a valuation of $570 million.

The startup was in fact looking to raise at a $1 billion valuation, which would have given it the unicorn status, but this didn't come through.

Reacting to this, Aadit Palicha, co-founder & CEO of Zepto, said,  “Yes, there was a buzz, about a billion dollars. The reality is that we've created a $900 million company in nine months, which is an incredibly successful outcome.

"On an absolute basis, making a $900 million company in nine months is a pretty exciting sort of achievement. While some can downplay it because it's some sort of artificial milestone, most people who know the internal process understand it.”

“We closed this round in about 5-6 weeks. We obviously did this round post the war and the whole downturn in private markets. But what we've noticed is that the investors have raised their bar and have become selective now and the quality of the companies that they invest in is now very high.”

Founded by two 19-year-old Stanford University dropouts – Aadit Palicha and Kaivalya Vohra – Zepto offers quick grocery delivery to customers through micro-warehouses. Palicha and Vohra, brought up in Dubai, are from families that had a background in business and dabbled with ventures early on. While in school they started up their first venture GoPool, a ride pooling app that was acquired by a Dubai-based firm.

It will use the new tranche of money to expand operations, hire, enhance products and scale its newly launched offering ‘Zepto Cafe’. Moneycontrol was the first to report on April 18 that the Mumbai-headquartered startup has tied up with restaurants such as Blue Tokai Coffee, Chaayos, Gurukripa snacks, and Sassy Teaspoon to deliver snackable items in 10 minutes. Some of the items being delivered include tea, croissants, samosa, and coffee.

Commenting on Zepto Cafe,  Palicha said that the company plans to enhance the core grocery experience, drawing a comparison with American convenience chain 7-Eleven, where customers grab a bite alongside groceries shopping. "We want to bring the offline experience for our online customers, and this is an interesting category for us within our core business. We will be investing and expanding this.”

He further said, “We plan to expand sustainably across the country. Our micro-markets are profitable so we will continue to do that. Currently, we are present in 11 cities which we plan to expand to over 20 cities by the next financial year,” said Palicha.  The startup is also hiring in marketing and operations apart from engineering, analytics, finance, and HR and has more than 1,000 team members now.

Palicha added that the company has been clocking more than a million orders a week for some time now, with daily orders in the average range of 1.5-3 lakh a day. The company is aiming to clock an annualized revenue of $1 billion by the first quarter of the Calendar year 2023.

Arguing against the criticisms around the 10-minute delivery model, Palicha said, “The faster you're delivering, the cheaper it gets. And you can do significantly more deliveries per item per hour, in the same amount of distance traveled, if you're delivering in short distances in 10 minutes, versus 6-7km.”

“Operationally it's difficult to do. But, if you do it well, it is significantly cheaper, if you don't do it well, it will still be cheaper, but you might lower the customer experience. We're always gonna be working very hard to deliver as fast as possible because the faster we deliver, the cheaper it gets.”

Earlier this year, Moneycontrol reported that Zepto held talks for a potential acquisition by online food delivery platforms Zomato and Swiggy. While the talks did not fructify, the fact that these conversations happened underscores the competitive intensity in the quick commerce space in India and shines a light on how larger rivals view upstart Zepto. While Zomato is riding on Blinkit for its quick commerce play, Swiggy is doubling down on Instamart, and recently invested in bike taxi platform Rapido, to widen its fleet network.
After a blockbuster 2021, when the country saw as many as 44 unicorns getting minted with investors pouring billions of dollars, the pace of funding has slackened, due to weak market sentiment, tighter due diligence and caution in the backdrop of governance lapses at some startups. Factors that probably explain why Zepto was willing to settle for a lower valuation.