Zepto raises new funds at $900 million valuations, indicates increasing interest of investors in the sector

Indian grocery start-up Zepto has announced raising USD 200 million in new funding, valuing the company at USD 900 million. This reflects the growing investor interest in a sector where companies entice customers with speedy 10-minute delivery, as per Reuters reported.

Last year, two 19-year-old Stanford dropouts founded Zepto. Its most recent fundraising round was led by current investor Y Combinator, a well-known Silicon Valley venture capital firm.

According to a statement released by Zepto on Tuesday, it included involvement from a new investor, Kaiser Permanente of the United States, as well as all of the company's previous investors, including Nexus Venture Partners, said Reuters.

In India, Zepto is competing with SoftBank-backed Blinkit. Both of which offer 10-minute grocery deliveries. Other competitors in the so-called quick commerce industry include Dunzo, which is supported by Indian billionaire Mukesh Ambani's Reliance, and Swiggy, which is backed by SoftBank, Reuters said.

According to Aadit Palicha, co-founder and CEO of Zepto, the company currently operates in 11 cities and expects to grow to as many as 24 more cities within the next quarter with the new financing.

"The scale that took food delivery companies years to achieve has taken us months (with groceries). That`s the benchmark most people use and the market size for groceries is far bigger," Palicha said in an interview.

According to Reuters, foreign investors are flocking to the country's tech firms to cash in on the expanding usage of digital payments, the internet, and smartphones in the South Asian market.

According to RedSeer, India's 'fast commerce' sector, which was worth $300 million last year, is expected to grow 10-15 times to $5 billion by 2025. The whole grocery retailing industry in India is far larger, with a market value of $600 billion.

While the business is flourishing, Reuters reported in January quick delivery services in India had raised road safety issues for delivery bikers, citing India's high accident rate, said Reuters.

Blinkit and Zepto drivers previously told Reuters that they were under pressure to make delivery deadlines, which often led to speed in order to avoid being reprimanded by store managers.

Palicha defended Zepto`s practices, saying drivers travel only short distances of an average of 1.8 km (1.12 miles) to deliver orders and don`t rush.
"Quick commerce is about short distances, not going fast," he said.

Sources with direct knowledge of the matter have told Reuters Zepto currently records monthly average revenue of $12 million, but spends about $8 million in marketing, promotion, and other activities like free deliveries each month, Reuters reported.

Palicha said, "we burn less (cash) than our rivals".

"This model is proven globally. In Turkey and Russia, companies have shown operating profits," he added.