At a time when valuation markdowns have become a common affair, three-year-old quick commerce firm Zepto has seen a nearly four times increase in its value in just one year. Analysts attribute this success to strong execution and better unit economics. Analysts also see Zepto as the best bet for investors in terms of direct exposure to quick commerce since other top players (Blinkit and BBNow) are deep-pocketed and already either acquired by top companies or run as a vertical by an established player (Swiggy Instamart). Further, this is also a space that experts say will be a duopoly with top two or maximum three players serving the market. Zepto is seen to be a contender for the second spot, with Zomato-owned Blinkit leading the pack with its gross order value (GOV) at Rs 4,027 crore in Q4FY24.
Once Zepto’s latest $310-million round is formally closed, it would have raised $1.5 billion in total and be valued at $5 billion. This would be a 40% jump from its last round in late June when it raised the year’s highest round of $665 million at a $3.6-billion valuation, more than double its valuation of $1.4 billion in August last year.
Some like Nexus Venture Partners have continued to participate in all rounds, starting from the seed round — a rarity in the ecosystem.While Zepto’s frequent fundraises underscore the massive growth that quick commerce has seen, the investor interest comes at a time when many leading late-stage startups such as Ola Electric, Oyo, PharmEasy, Meesho, among others, have seen valuation dips, amid a funding winter and tough macroeconomic conditions. Venture capital funds have also been turning to secondary exits to tackle the downturn.
“Indian markets give a huge premium to consumer companies and even within the consumer category, leaders or the top 2-3 companies in a winner-takes-all market always get a premium,” Kushal Bhagia, founder, All In Capital, said. He added that Zepto has demonstrated amazing execution by increasing its market share vis-à-vis Swiggy Instamart and is also rumoured to be doing better unit economics.
The IPO-bound company’s GMV (gross merchandise value) has multiplied year-on-year to a base of over $1 billion, and around 75% of the company’s stores are fully Ebitda positive as of May 2024. It reportedly plans to increase its dark stores count to 700 from the current 350 by March 2025.
In 2023, when unicorn status was a distant dream for almost all startups, Zepto raised $200 million at a valuation of $1.4 billion to become the first Indian startup to get the tag in August. The firm is today backed by Lightspeed Venture Partners, avra, Glade Brook Capital, Nexus Venture Partners, StepStone Group, among others. Reports say Mars Growth Capital is set to participate in the next round joined by US-based General Catalyst and other existing investors.
Retail has always attracted investors in India. They jump in at the first glimpse of success in a model in retail, says an analyst, who didn’t want to be quoted. While there have been some valuation corrections, many venture capitalists still seem to be riding the wave in certain sectors, especially the red-hot quick commerce sector. “Valuations will rise more before correction. The ones who build keeping unit economics at the centre – will survive. Others will burn and crash,” Deep Bajaj, co-founder, Sirona Hygiene and an angel investor said.
Zepto, founded by 22-year-old Standford dropouts Aadit Palicha and Kaivalya Vohra, is also the flagbearer of quick commerce and first movers have always had an advantage. “If the startup not only is the first mover but also keeps executing to keep their lead over followers, it keeps attracting investors,” Bhagia said. Zepto is scaling at a fast pace and has been careful so far, another reason for being valued at $5 billion, higher than $4.6 billion that it was to be valued in the beginning.