Zepto raises $665 million

21 Jun 2024 , 02:08 PM

Zepto, an instant grocery delivery app, has successfully raised $665 million. It is now being valued at $3.6 billion. This funding round reflects investors’ confidence in the rapidly growing quick commerce sector in India.

Despite a more selective investment climate, Zepto’s fundraising, a fully primary round, attracted substantial interest. Leading the round were existing investors like Glade Brook, Nexus, and StepStone, who contributed the majority of the funds. New participants included Avenir Growth, Lightspeed, Avra, and others. Notably, DST Global, an early investor in Swiggy, emerged as the largest new investor with a $100 million contribution.

Among the new investors, Avenir Growth has stakes in companies such as Spinny, Zetwerk, Flutterwave, and Savage X Fenty. Lightspeed has previously backed Zapp, a UK-based instant grocery delivery startup, and DST Global is also an investor in Swiggy, Zepto’s main rival. Avra, founded by Anu Hariharan of Y Combinator, brings additional expertise to Zepto’s growth strategy.

This marks Zepto’s second significant funding round in less than a year, following a $231 million raise at a $1.4 billion valuation in August 2023. The Mumbai-based company plans to use the new funds to expand into new markets like Jaipur, Chandigarh, and Ahmedabad, while increasing its presence in existing cities such as Mumbai, Delhi, and Bengaluru.

Zepto aims to double its number of dark stores from 350 to over 700 by March 2025, aligning with similar expansion strategies from competitors. Blinkit, a Zomato-owned market leader, plans to open 1,000 stores by the same timeframe. Other major players in this space include Swiggy Instamart and Tata’s BigBasket (BB Now).

To support its growth, Zepto will also expand its workforce from around 1,700 to approximately 2,200 employees in the coming quarters. This growth will span various functions, with a significant portion focused on establishing operations in new locations.

Zepto’s rapid expansion is expected to further boost its gross merchandise value (GMV), which has already surpassed $1 billion in just three years since its inception. The company’s ad revenue, currently at around Rs 100 crore, is projected to reach Rs 1,000 crore within a year, contributing significantly to its GMV growth.

Advertising income has become a crucial revenue stream for quick commerce companies like Blinkit and Zepto. Blinkit reported that its ad business outpaced order value growth in Q3FY24, driven by factors such as high transaction volumes, user-friendly ad platforms, and high return on investment (ROI) on ad spending. Zepto is expected to benefit from similar dynamics.

Founded in 2021 by Palicha and Kaivalya Vohra, Zepto handles 550,000 orders daily through its network of 350 dark stores across seven Indian cities. The company has a take rate of 23%, according to analysts at Goldman Sachs.

For comparison, Blinkit, the leading player in quick commerce, delivers over 700,000 orders daily and operates 526 dark stores as of the January-March period, with a take rate of around 19%.