Zepto eyes $250 mn from HNIs, wealth firms at flat valuation

Quick commerce startup Zepto is looking to raise about $250 million from high-net-worth individuals and wealth management firms, including Motilal Oswal, IIFL and InCred, at a near-flat valuation of $5 billion, three people familiar with the matter told Mint.

“The wealth firms are expected to further downsell it to their HNI clients,” one of the people cited above said. A second person said the round is expected to close later this month. Motilal Oswal is running the mandate for the transaction, the person added. 

If the deal goes through, it will be the startup's third capital raise in six months. 

Zepto, Motilal, IIFL, and InCred did not immediately respond to Mint’s request for comment.

The Mumbai-based startup, which is gearing up for a public market listing next year, entered the coveted unicorn club a year ago when it raised $200 million at a valuation of $1.4 billion. 

In the run-up to a planned IPO, Zepto would be looking at balancing its captable, one of the people cited above said. This is a common exercise that several startups have incorporated in recent times as early investors look to sell part stakes and return capital to their limited partners amid a broader liquidity crunch. 

In August this year, Zepto secured $340 million in a funding round led by General Catalyst at a valuation of $5 billion. Other new investors, including Dragon Fund and Epiq Capital, participated in the round, while existing investors such as StepStone, Lightspeed, DST and Contrary increased their stakes.

The deal came nearly two months after it raised the largest fundraiser when it announced a $665 million pre-IPO round at a valuation of $3.6 billion. It planned to use the capital to double the number of its dark stores, or warehouses, to 700 by March 2025.

Ebitda positive

Nearly 75% of Zepto’s 350 stores are Ebitda-positive (or operationally profitable), CEO Aadit Palicha told Mint in an interview in June, adding that the company has shrunk the time it needs for its dark stores to become profitable from nearly two years to six months. At a company-level, too, Zepto is nearly Ebitda-positive, he added. The startup also reinvests proceeds from its profitable stores back into the business.

Also Read: Zepto plans bigger dark stores to fulfill quick-commerce orders

Besides dark stores, Zepto also outlined plans to use the capital to scale up Zepto Café - its quick-delivery snack and meal service, throwing the gauntlet at Zomato and Swiggy, originally food-delivery platforms that are investing heavily in their quick-commerce businesses. It directly competes with Swiggy’s Instamart, Zomato’s Blinkit and Flipkart’s Minutes while even other bigger conglomerates such as Tata, Reliance and Amazon test similar moves.

Over the past few months, these companies have fuelled demand for instant deliveries, growing their network of dark stores and expanding their range of products. Blinkit, which Zomato acquired in June 2022, commands a 40% share of India’s quick-commerce market, according to an HSBC Global Research report in April. Zepto has steadily increased its share to 28% at the cost of Swiggy Instamart over the past two years, it said. Swiggy is preparing for a listing in the coming week.

Also Read: Quick delivery, quick returns: How Instamart, Zepto and Blinkit plan to take on e-commerce giants

The red-hot quick commerce sector in India currently has a market size of $2.8 billion, and is expected to sustain 40-45% growth over the next three years, riding on promising user growth potential, rising urban population and disposable incomes and greater demand for convenient and instant shopping solutions, according to a Redseer report published in March.

Founded in 2021 by Palicha and Kaivalya Vohra, Zepto was started with the aim of delivering daily staples online as covid restrictions made it difficult and challenging for people to run their regular errands.

Also Read: Dunzo could have been a Zepto. So why did it fail?