Flipkart’s majority stake talks with Zepto fall through

Ecommerce major Flipkart held talks with Zepto for a potential deal but the discussions fell through and are unlikely to be revived, said two people in the know of the matter. Zepto, a top player in the fast-growing quick-commerce segment, is understood to have opted for a financial round over a strategic sale, these people said on condition of anonymity as the talks were private.

The startup is currently in talks with a clutch of private equity funds along with existing investors to close a fresh funding round, according to people familiar with the development. Zepto is expected to snag a valuation of nearly $2.5 billion, almost double that of its previous round, on the back of the momentum in the quick commerce sector in the past few months.

People familiar with the situation said Walmart-owned Flipkart was keen on picking up a majority stake in Zepto at a price tag below $2 billion with the founders running the company.

“The companies met and Flipkart made a verbal offer to buy a majority stake in Zepto… but the deal talks didn’t go ahead,” said one of the persons cited.

ET was the first to report on April 2 about Zepto returning to the market to rack up $250-300 million of capital just six months after having closed a financing round at a valuation of $1.4 billion.

Sources in the know said it has engaged with PE firms such as General Atlantic and sovereign funds including Abu Dhabi Investment Authority (ADIA) and others for a possible investment.

Flipkart and General Atlantic declined to comment. ADIA didn’t respond to queries.

Zepto chief executive Aadit Palicha said the company is “not open to strategic investors today”, adding that he won’t comment on market rumours about external parties and investors.

“We have almost all the capital from the previous fundraise still in the bank while the company is close to ebitda positive. With that context, in any future fundraise, we would have no intention or need to raise an amount as large as $500 million,” Palicha said.

According to him, any future fundraise would be primarily to prepare a balance sheet as a precursor to an initial public offer (IPO).

Also read | Zepto, Blinkit adding fashion, electronics, beauty and more

Zepto financing round

Sources familiar with the matter said Zepto has secured commitments from existing backers like Glade Brook Capital and Nexus Venture Partners among others.

The company continues to scout for an external investor to lead the financing round, these people added. Anu Hariharan, previously the head of Silicon Valley’s Y Combinator’s growth fund YC Continuity Fund, may invest in Zepto through her newly launched firm Avra. She’s an independent director on the board of Zepto. Y Combinator, an investor in Zepto, discontinued its growth fund after which Hariharan left the famed accelerator.

Hariharan didn’t respond to ET’s queries.

“Zepto has indicated to potential investors that it may stretch the round size to around $500 million… Internal commitments from current brackets are for $200 million,” said a person aware of the matter.

According to another person familiar with developments, Zepto may opt for a mix of primary and secondary transactions. Founders Aadit Palicah and Kaivalya Vohra own more than 20% of the company they launched as Kiranakart in 2020. The Mumbai-based company recently conducted a minor secondary round in which a few of its angel investors sold shares.

Q-commerce bid

Flipkart’s interest in a strategic deal underscores the importance of the sector for the Walmart-owned etailer, which has lagged behind in the instant-delivery segment. Flipkart plans to launch its own quick delivery service in July and is in the process of setting up dark stores that will fulfil deliveries in under 30 minutes, people aware of the plans said.

The Bengaluru-based company had previously also been in talks with cash-strapped quick commerce player Dunzo, in which Reliance Retail is the single largest shareholder, for a significant investment but those talks didn’t progress. Techcrunch was the first to report on the Flipkart-Dunzo discussions.

Dunzo was also approached by Walmart-backed PhonePe for its ONDC-led ecommerce business of Pincode, but the transaction didn’t go through as the company’s board blocked the proposal, ET reported on December 18. Open Network for Digital Commerce (ONDC) is an Indian government-backed marketplace for sellers and offline businesses to counter the dominance of Amazon and Flipkart.

Flipkart’s moves to invest or acquire one of the standalone players in the quick commerce industry is aimed at gaining strategic control in a sector that’s increasingly being seen as challenging ecommerce. ET has been reporting on Swiggy Instamart, Zepto and Zomato’s Blinkit fast expanding into new categories beyond grocery and staples as they encroach on the territory of horizontal etailers such as Flipkart, Amazon India and Meesho.

Also read | Non-grocery items deliver bright growth to dark stores

Much in demand

Several brokerage reports over the past month have chronicled the rising importance of quick commerce for brands as well as the pressure they are likely to put on large ecommerce players. A report by UBS earlier this month said quick commerce has gone from “good to have” to “indispensable”. The report said the nascent sector is likely to achieve gross merchandise value (GMV) or total sales of around $34 billion by FY29 with a total addressable market (TAM) potential of $520 billion.

“We believe the three large quick commerce platforms currently have a comfortable advantage on the core infrastructure needed — rollout of dark stores and logistics infrastructure — although a more fragmented market structure over the medium term cannot be ruled out,” the report said.

At the end of FY24, the market is estimated to have reached $5 billion in size. “This would imply a CAGR (compound annual growth rate) of 45% over FY24-29e,” it added.