Zepto is first Indian unicorn of 2023, raises $200 million at $1.4 billion valuation

Founded by Kaivalya Vohra (L) and Aadit Palicha (R) in 2021, Zepto has raised around $560 million and is valued at $1.4 billion.

Zepto, a quick-commerce startup, raised $200 million at a valuation of $1.4 billion, ending India's 11-month unicorn drought.

The Series E round was led by the StepStone Group, a US asset management firm, and included Goodwater Capital and some existing investors. Zepto’s valuation jumped from $900 million in May 2022.

The funding is of particular importance because Zepto is the first unicorn, or startup valued at over $1 billion, to be minted in India this year. Molbio Diagnostics was the last to achieve unicorn status in September 2022.

At the height of the funding boom in 2021, the country added a unicorn almost every week. As many as 44 startups entered the unicorn club in 2021 and 23 were added last year. Since then, investors tightened their purse strings and have been cherry-picking the startups they’re backing, reflecting their prudent stance.

Of the $200 million that Zepto has raised, $105 million came from the StepStone Group ($75 million) and Goodwater Capital ($30 million), both new investors in the Mumbai-based company. While this marks StepStone’s first direct investment in the country, Goodwater Capital has invested in audio-streaming startup Pocket FM and edtech companies Teachmint and Yellowclass.

Zepto got the remaining $95 million from existing investors Nexus Venture Partners, Glade Brook Capital and Lachy Groom. Barring Nexus, Zepto hasn’t actively raised money from India-centric VCs, but that may change over the years, co-founder Aadit Palicha told Moneycontrol in an interview.

“The investors we got onboard are high-quality, detail-oriented ones who have seen multiple cycles. Most investors have not seen a through and through cycle like this in India when it comes to technology investing and as a result they are a lot more conservative,” Palicha said. “They are a lot less willing to invest in a bear market versus some larger institutional investors, like StepStone, which have been investing for decades. They've got the capability to take high-quality contrarian bets in this (bear) market.”

StepStone, which manages $140 billion of assets, is a limited partner in Lachy Groom, Nexus VP, Goodwater Capital and other funds who are already investors in Zepto.

“Both StepStone and Goodwater Capital have invested in operationally intensive retail businesses before… we didn't find people that specialise in this category in India. That being said, we are very excited to go deeper with India-centric investors. Going forward, Zepto is going to see a lot more India-centric investors,” he added.

Zepto competes with Zomato-owned Blinkit, Swiggy Instamart, Reliance-funded Dunzo and Tata’s BigBasket (BB Now). While Blinkit and Instamart keep swapping places as the top two players, Zepto was the third-largest in terms of order volumes, it told investors in a pitch deck that Moneycontrol accessed earlier.

The startup also revealed that its monthly cash burn had reduced to Rs 55 crore in April from Rs 90 crore in September 2022. While Palicha did not reveal specific numbers, he said the cash burn was on a downward trajectory.

With its EBITDA margin narrowing to a negative 15-16 percent in April from a negative 278.6 percent in January 2022, Zepto aims to turn EBITDA-positive in 12 months and is eyeing an initial public offering during the first half of 2025.

Path to IPO

Zepto raised money this year even as Palicha said most of the capital from the previous round, also $200 million, still sits in its bank accounts.

“In 12 months, when we get to EBITDA-positive, we will not need to spend a significant amount of this money. After EBITDA-positive, we’ll do a pre-IPO round. This was our last growth equity round and was done just to build our balance sheet,” Palicha said.

Zepto was founded in 2020 during the pandemic and started operations in 2021. In two years, it has raised about $560 million. The large-ticket round, where cheques worth $100 million are given in a single round, comes even as the broader ecosystem has struggled for funds.

Funding of Indian startups fell 77 percent in the first seven months of 2023 compared to the same period last year. Since the beginning of 2023, only a handful of startups has been able to close large funding rounds.

FreshToHome raised $104 million from Amazon and others in February, and PhonePe is in the midst of a $1 billion round, having already received $750 million. In June, Lenskart closed a $600 million round.