Zepto raises $665 million at $3.6 billion valuation in biggest funding round this year

Zepto founders, Aadit Palicha (L) and Kaivalya Vohra (R).

Instant grocery delivery app Zepto has raised $665 million at a valuation of $3.6 billion valuation, as investors look to double down on the booming quick commerce sector in India.

The fundraise comes even as investors have become selective in the kind of startups they back as capital becomes difficult to access.

Moneycontrol was first to report on June 13 that Zepto was stitching together a round as large as $650 million at a valuation of $3.5 billion.

The fresh $665 million fundraise, a complete primary round, was co-led by existing backers like Glade Brook, Nexus, and StepStone who put in a majority of the amount of the capital. New investors like Avenir Growth, Lightspeed, Avra and others put in the remaining amount to join the company’s cap table.

Sources also told Moneycontrol that DST Global, an early backer of rival Swiggy, was the single largest new investor in the company, putting in around $100 million.

“We were able to raise this round because we were able to multiply gross merchandise value (GMV) to a north of $1 billion in sales in around 2.5 years, the fastest internet company in the world to do so. We’re growing by over 100 percent year-on-year," Palicha told Moneycontrol in an interview

"While doing that we were able to turn 75 percent of our markets fully EBITDA positive. So, if we hadn’t executed and delivered on those numbers, it would have been very difficult to raise. But because we did it, it was actually quite easy for us to raise the kind of capital we did,” he added.

Zepto’s cap table

Barring Avenir Growth, an investor in companies like Spinny, Zetwerk, Flutterwave, Savage X Fenty, all of Zepto's new investors have had exposure to quick commerce in the past. While Lightspeed has backed Zapp, a UK-based instant grocery delivery startup, DST Global is an investor in Swiggy, Zepto's main competitor. Avra is set up by Anu Hariharan who ran Y Combinator, an early backer of Zepto.

For Zepto, this is the second large round in under a year. It raised $231 million at a valuation of $1.4 billion in August 2023.

Mumbai-based Zepto will use the money to enter new markets like Jaipur, Chandigarh, Ahmedabad and others while also increasing penetration in existing cities like Mumbai, Delhi, Bengaluru and others.

The company expects to double its dark store count from 350 now to over 700 by March 2025.

Those expansion plans are in line with the strategy other companies are following, too. Zomato-owned Blinkit, the market leader, said it will open 1,000 stores by March 2025.

Blinkit, Swiggy Instamart, Zepto and Tata’s BigBasket (BB Now) are all top players in the space.

“We've seen competitors do fairly well in those regions (non-metro cities). They've been able to succeed in those markets fairly seamlessly and so, we look at those pin codes as fairly established markets already…overall, we're looking at category expansion. Categories that will be beneficial for us on both the margins and average order value (AOV) fronts. There's a lot more levers on the table that we will keep adding over time to better profitability,” Palicha said.

Hiring plans

To maintain its momentum, Zepto said it will also expand its workforce and have a total of around 2,200 employees in the coming quarters, up from around 1,700 currently. While these will be across functions, a bulk of it will also be to set up operations in new pin codes.

Palicha said that markets like Jaipur, Ahmedabad and the like turn profitable much faster than metro cities, because of lower offline penetration in these regions, and the markets are 30-40 percent cheaper to operate thanks to lower wages and inexpensive real estate.

Ad income

New markets will further boost Zepto’s GMV which is already at over $1 billion in just three years since inception. Zepto’s ad income, which is already at around Rs 100 crore, will further lift GMV as the division aims to become a Rs 1,000 crore business in 12 months.

Ad income is an additional stream for quick commerce companies like Blinkit and Zepto. In Q3FY24, Blinkit had said its ads business grew faster than order value as more brands spent on the platform.

Quick-commerce being one of the most transacted categories online, easy-to-use self-serve ad platform and measurable and high return on investments (ROI) on ad spends were the three factors that helped improve ad monetisation for Blinkit.

Even for Zepto, the factors would not be very different.

Flipping back

Zepto, which is domiciled in Singapore, is also in the process of flipping its base back to India, and the process will be complete in the next couple of months, Palicha told Moneycontrol.

Not just Zepto, large companies such as Flipkart, Meesho, Groww, Zepto, Pine Labs, Razorpay and Udaan are all looking to domicile in India, moving out of countries like the US and Singapore, ahead of an eventual public listing here in India.

More recently, Flipkart co-founder Binny Bansal also advised startups to incorporate in India.

Founded in 2021 by Palicha and Kaivalya Vohra, Zepto does 5.5 lakh orders a day through a network of 350 dark stores across seven cities in India, the company management had told Goldman Sachs in April. It has a take rate of 23 percent, analysts at the brokerage said.

For context, Blinkit, the number one quick commerce player, delivered over 7 lakh orders each day and had 526 dark stores during the January-March period, filings showed. Blinkit had a take rate of around 19 percent.