Nine months after its launch, hyperlocal delivery start-up Zepto has announced its $200-million Series D fundraise, valuing the company at around $900 million. Y Combinator Continuity fund doubled down and led the round, with new investor Kaiser Permanente also joining in to back the company.
All key existing investors, including Nexus Venture Partners, Glade Brook Capital and Lachy Groom, have also increased their investments in the current round, a company statement said on Monday.
The Mumbai-based start-up, which originally began in ‘stealth mode’ early last year, had earlier raised funding from prominent angels such as Lachy Groom, Neeraj Arora and Manik Gupta. The start-up was last valued at $225 million in a funding round in November 2021. To date, Zepto has raised around $260 million in equity financing, including the current round.
“We posted an 800% q-o-q revenue growth, while burn has come down 5X on a per-order basis. Our team achieved this while continuing to delight our customers – we maintained a phenomenal 88-Point NPS and 60% Month-1 Buyer Retention at scale. This unbelievable execution over the past few months has made it clear to investors that Zepto will be one of the winners in Indian q-commerce,” Zepto co-founder & CEO Aadit Palicha said in a statement.
Zepto offers a 10-minute grocery delivery service mostly focused in metro and Tier-1 cities currently using a network of dark stores. Dark stores are delivery-only stores which allow start-ups to stock up on their own inventory through sourcing tie-ups with wholesalers and brands. Zepto currently stocks and delivers more than 3,000 products using its 10-minute delivery model.
The delivery start-up competes with existing hyper-funded firms like Dunzo and unicorns such as BigBasket, Swiggy and Blinkit, which have all mopped up millions of dollars in venture and institutional capital in the past few years.
Founded by 19-year-old Stanford drop-outs Aadit Palicha and Kaivalya Vohra, Zepto (formerly known as Kiranacart) has offices in Bengaluru and Mumbai. Its management includes senior leaders from some of the nation’s largest start-ups, including Flipkart
The 10-minute delivery service, also known as quick commerce, has been a new trend among hyperlocal delivery start-ups in the country which operate using an inventory model. Though start-ups like BigBasket, Swiggy and Dunzo started as pure marketplace businesses in grocery delivery, all of them eventually pivoted to an inventory model using their own dark stores.
The dark store model allows delivery start-ups to have greater control over inventory and overall operations, allowing them to provide a superior customer experience compared with the marketplace model where inventory management turned out to be an arduous operation. The concept was first experimented in India by BigBasket, which currently operates hundreds of such stores across the country.
With fresh capital now in the bank, Zepto plans to continue growing sustainably across India. The company has also built a large team of over 1,000 people in a few months, and it plans to continue hiring across all functions, including engineering, analytics, operations, marketing, finance, and HR.
“Our rigorous focus on unit economics is the main reason why we’ve had such an amazing trajectory as a company. We’ve turned micro-markets profitable and brought down burn significantly while growing to a scale of hundreds of thousands of orders per day,” Zepto co-founder & CTO Vohra added.
The 10-minute delivery model is the latest disruptive model in India’s online grocery retail market. Quick commerce products such as Zepto, Dunzo, Blinkit, Swiggy Instamart and BBNow are beginning to gain steam among both metro and Tier-2 city users. Estimates from management consulting firm RedSeer indicate that the q-commerce market is currently valued at around $715 million, or just 13% of the current online grocery market. This number, however, is expected to grow to a whopping $5.5 billion by 2025, the consultancy firm said in a recent report in March.
A user survey conducted by RedSeer in September 2021 showed that 70% of the users in metro and Tier-1 geographies preferred to make unplanned purchases of small quantities throughout the week, rather than large monthly purchases. This indicates a fundamental shift in online consumer behaviour patterns which could be beneficial to the q-commerce revolution.