Quick-commerce startup Zepto is now a quick-commerce unicorn, the first one in India this year.
It has raised $200 million at a valuation of $1.4 billion, the first to turn a unicorn after an 11-month unicorn drought.
The funding round was led by the StepStone Group, a US asset management firm and included Goodwater Capital and some existing investors.
This round is significant for making Zepto the first unicorn, or startup valued at over $1 billion, to be minted in India this year.
Ending unicorn drought
Zepto is the first unicorn, or startup valued at over $1 billion, to be minted in India this year since last September.
The last startup in India to turn unicorn was Molbio Diagnostics in September 2022.
Before that, at the peak of the funding boom in 2021, the country added a unicorn almost every week.
44 startups entered the unicorn club in 2021 and 23 more last year.
However after this, funding started to recede and investors have been more selective of the startups they’re backing.
Investor profile
Of the $200 million that was raised, $105 million came from the StepStone Group ($75 million) and Goodwater Capital ($30 million) who are both new investors.
For StepStone this is its first direct investment in India.
Goodwater Capital has invested in audio-streaming startup Pocket FM and edtech companies Teachmint and Yellowclass before.
The remaining $95 million came from existing investors Nexus Venture Partners, Glade Brook Capital and Lachy Groom.
Only foreign interest
Barring Nexus, co-founder Aadit Palicha shared that the company hasn’t actively raised money from India-centric VCs, but that may happen in the coming years.
“The investors we got onboard are high-quality, detail-oriented ones who have seen multiple cycles.
Most investors have not seen a through and through cycle like this in India when it comes to technology investing and as a result they are a lot more conservative,” Palicha said.
“They are a lot less willing to invest in a bear market versus some larger institutional investors, like StepStone, which have been investing for decades.
They’ve got the capability to take high-quality contrarian bets in this (bear) market.”
“Both StepStone and Goodwater Capital have invested in operationally intensive retail businesses before… we didn’t find people that specialise in this category in India.
That being said, we are very excited to go deeper with India-centric investors. Going forward, Zepto is going to see a lot more India-centric investors,” he added.
Competition
Zepto counts Zomato-owned Blinkit, Swiggy Instamart, Reliance-funded Dunzo and Tata’s BigBasket (BB Now) as rivals.
It’s an ongoing competition between Blinkit and Instamart as the top two players, while Zepto was the third-largest in terms of order volumes.
Financials
The startup revealed that its monthly cash burn had reduced to Rs 55 crore in April from Rs 90 crore in September 2022.
Without sharing specifics, Palicha said the cash burn was on a downward trajectory.
Zepto aims to turn EBITDA-positive in 12 months, with its EBITDA margin narrowing to a negative 15-16 percent in April from a negative 278.6 percent in January 2022.
It is eyeing an initial public offering during the first half of 2025.
Road to IPO
Despite having raised money, Palicha said most of the capital from the previous round, also $200 million, is still in savings.
“In 12 months, when we get to EBITDA-positive, we will not need to spend a significant amount of this money. After EBITDA-positive, we’ll do a pre-IPO round. This was our last growth equity round and was done just to build our balance sheet,” Palicha said.
