This will take the total funds raised to nearly $1 billion in two successive rounds for the three-year-old firm. It raised $665 million from a clutch of investors in late June, more than doubling its valuation to $3.6 billion from $1.4 billion in August last year. In a year, Zepto has seen a more than three-and-a-half-time spike in valuation, aided by the rapid rise in demand for quick commerce.
Mars Growth Capital, co-run by Mitsubishi UFJ Financial Group Inc and Israel’s Liquidity Group, is set to participate in the next round joining US-based General Catalyst and other existing investors of the Mumbai-based firm for which a term sheet has now been signed, people briefed on the matter said.
Existing investors and some wealthy individuals may also pumped in funds in this round, which may push the total size of the round to $350 million. According to people briefed on the terms, Zepto cannot raise more than $350 million in a new round within 90 days of the previous round even at a higher valuation under the terms of the funding, to protect existing investors against dilution of their stake.
“The term sheet was signed Friday and it should close in a couple of weeks. Mars Growth is investing about $50 million while General Catalyst is investing around $200 million and the rest from others,” one of the people said.
Mars Growth is an investor in Indian unicorns like B2B manufacturing company Zetwerk and edtech firm Eruditus. General Catalyst is an investor in Cred. Neeraj Arora of General Catalyst will join the board of Zepto as part of this round, as per terms seen by ET. Arora, the former chief business officer of WhatsApp, joined the Silicon Valley-based firm following the acquisition of homegrown early-stage fund Venture Highway in June.
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An email sent to Mars Growth seeking comment didn’t elicit any response, while Zepto founder Aadit Palicha declined to comment.US tech publication The Information first reported about Zepto’s additional fundraise at $5 billion valuation on June 25.
Once formally closed, Palicha, the 22-year-old Stanford dropout along with batchmate Kaivalya Vohra, would have raised $1.5 billion in total.
In June, new investors such as DST Global, Avenir Growth Capital, Lightspeed Venture Partners and Avra invested in Zepto, which is domiciled in Singapore and is planning to move base to India with plans for an initial public offering in the pipeline. DST Global is an investor in Swiggy, which runs Instamart.
“We would like to be a public company in the relatively near term… we look at this funding as a balance sheet building exercise going into an IPO,” Palicha told ET following his $665 million fundraising.
Who’ll blink(it) first?
The latest financing will give Zepto further ammunition to take on bigger rivals like Blinkit as well as Swiggy Instamart, besides new entrant Flipkart Minutes. Tata Digital-owned BigBasket offers quick-delivery services through BB Now.
ETtechBlinkit, owned by Zomato, is being ascribed a valuation of $12-13 billion by global brokerages following a surge in June-quarter sales. Blinkit has announced an aggressive expansion to 2,000 dark stores by 2026. As per Zomato’s June quarter results, Blinkit has a gross order value run-rate of over $2.3 billion. Zepto’s annualised gross sale run rate is around $1.5 billion and is expanding heavily to boost this. Zepto is on track to set up 700 dark stores by March 2025. Blinkit aims to have 1,000 dark stores by March 2025.
“The spends from Zepto have already increased due to intense rivalry. Blinkit made its intentions clear in its June-quarter earnings on expansion and it is taking the battle head-on, while Flipkart has also started its quick service from Bengaluru,” a person aware of market dynamics said.
Flipkart had offered a majority investment deal to Zepto, but the talks fell through, and the company opted for financial investors, ET had reported on April 19.
Zepto’s new stores will be slightly larger at around 4,000 square feet in area, compared to its current stores at 3,500 square feet, per current plans. “The firm’s assortment, meanwhile, has expanded from 3,000 stock keeping units (SKUs) to 10,000 SKUs and will continue to expand, Palicha told ET in June.
“(Zomato) expects GOV (gross order value) per store (for Blinkit) to keep increasing despite scaling up store count… If Zomato were to deliver on this guidance, our FY27 GOV for Blinkit would be higher by circa 30%, with implied FY24-27 GOV CAGR of 78% (vs 64% in base case),” Goldman Sachs said in a recent brokerage report. Jefferies said Blinkit is the market leader in the fast-growing quick-commerce space and is set to see sharp margin improvement in the steady-state.
Swiggy’s largest investor Prosus in its annual report for 2023 said Instamart witnessed improved unit economics as a result of “larger basket sizes, expanded user base and improved operational efficiency”.
Across quick-commerce firms, they have been fast diversifying into categories such as electronics, beauty and personal care, toys, stationery, and appliances, which were previously the domain of ecommerce platforms like Flipkart and Amazon.
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