Food delivery platform Swiggy on Tuesday said it has closed a chunky $1.25-billion funding round led by SoftBank Vision Fund 2 and existing backer Prosus. The investment increases the valuation of the start-up firm to $5.5 billion from the $3.3 billion it had achieved in its last big funding round in 2018.
The funding includes a first tranche of $800 million infused by a clutch of investors which the firm had announced internally in April and a fresh $450 million investment made by SoftBank Vision Fund 2 which is making its first bet in the Indian online food delivery space.
“SoftBank has chosen to back Swiggy for its more formidable non-food delivery play. It is morphing into a convenience app and it is expected that a major chunk of the company’s revenues will come from the non-food delivery segment going forwards,” one of the sources in the know said.
In all, the financial round was backed by Swiggy’s existing investors Accel Partner, Wellington Management and a slew of new investors, including Qatar Investment Authority, Falcon Edge Capital, Amansa Capital, Goldman Sachs, Think Investments and Carmignac.
Swiggy’s last big funding round was in December 2018 when it had garnered $1 billion from a set of investors led by Prosus at a valuation of $3.3 billion. The Bengaluru-based firm’s total fund count now stands at around $2.5 billion.
While Swiggy will use a portion of the funds to continue growing its core food delivery business, the bulk of the capital will be deployed to build non-food verticals like grocery in 2021 and beyond. This will entail heavy investments in boosting technology, artificial intelligence (AI) capabilities and hiring skilled talent.
“Our biggest investments will be in our non-food businesses that have witnessed tremendous consumer love and growth in a short span, especially in the past 15 months of the pandemic,” CEO Sriharsha Majety said in a statement. “I believe the next 10-15 years offer a once-in-a-lifetime opportunity for companies like Swiggy as the Indian middle class expands and our target segment for convenience grows to 500 million users,” Majety said.
Swiggy’s instant grocery delivery service Instamart is focused on creating the convenience grocery category. The seven-year old start-up has also expanded its pick-up and drop service, Swiggy Genie, to 65 cities and deepened the presence of its meat delivery service in key markets. The company claimed its daily grocery delivery service Supr Daily, which operates in major Indian cities, is reaching new users every month.
There are a lot of last-mile value propositions in India which remain largely untapped — categories like grocery, home utility essentials, conceirge services, pharma, documents, gifts and cakes among others. The market for such last-mile deliveries is huge. “What Swiggy is saying is can I use my delivery fleet and can I drive multiple use cases on that delivery fleet? Unlike Zomato which provides other services like restaurant listings, Swiggy has focused on being more of a logistics and last mile player,” said Aryaman Tandon, managing partner and co-founder at Praxis Global Alliance. Besides, the food delivery business has become operationally profitable on the back of the Covid-led growth; average ticket sizes have gone up, customer repeat rates have improved and need for aggressive discounting is not there. “Non-food is a natural growth adjacency because anything you do has a large impact on the bottom line,” Tandon said.
Rival Zomato, which launched its `9,375-crore initial public offering (IPO) last week, is also looking at new businesses and has recently invested in e-grocery firm Grofers. Zomato is also planning to roll out online grocery services on the app soon.
Investor appetite for the Indian online food delivery space has grown manifold as the pandemic boosted demand for online food ordering. Analysts at Kotak Institutional Equities estimate the online food delivery industry gross merchandise value (GMV) to increase to $9 billion in FY25 and further to $27 billion by FY30 from a projected $3 billion in FY20 on the back of the Covid-led growth. The segment that has about 15 million transacting users at present is expected to widen its customer base to as many as 80 million going ahead.
Swiggy, which leads the food-tech space along with Zomato, connects consumers to over 1,50,000 restaurant partners and stores in over 500 cities. “Swiggy’s focus on evolving the consumer experience, and its emphasis on relationships with its delivery partners and restaurants, have made it a household brand in India,” said Munish Varma, managing partner, SoftBank Investment Advisers.
“They have the railroads in place to empower multiple businesses to reach the new age consumer on a daily basis, and food delivery is just the beginning,” Sumer Juneja, partner, SoftBank Investment Advisers, said.
