Zepto becomes first unicorn this year, raises $200 mn at $1.4 bn valuation

This comes amid a funding slowdown where startups, across the board, have found it challenging to raise capital

Quick commerce firm Zepto raised $200 million in a Series-E funding round at a $1.4 billion valuation, becoming the only Indian startup to turn a unicorn this year, and the 110th so far.
 

This signals a potential thaw in the funding winter, which has impacted the Indian startup sector for the past one and a half years. The fundraise also indicates investor confidence in the fledgling sector.
 

“Everyone thought this business model was nonsense, but it is working. It has turned out to be the fastest-growing category in India and will be the fastest ever to hit profitability,” Zepto Chief Executive Officer Aadit Palicha told Business Standard. 

The Mumbai-headquartered company said it planned to go public by 2025.
 

 With this round, StepStone Group, a Baltimore-based institutional asset manager, made its first investment in India. StepStone is also a limited partner (LP) of existing investor Nexus Venture Partners. The round saw the participation of Goodwater Capital, a California-based growth equity consumer internet fund, and follow-on investments from Nexus, Glade Brook Capital and Lachy Groom. None of its investors took an exit through the deal.
 

Zepto raised $200 million in May last year, which valued it at $900 million.
 

“Most people are underestimating how well the business is doing in terms of growth and profitability. The perception out there about this business model is wrong,” Palicha said in a virtual interview.
 

The company, he said, had grown 300 per cent year-on-year this year and its dark stores, which contributed over 50 per cent to the business, were now profitable. The startup is on track to turn cashflow-positive in the next 12-15 months and is eyeing a public listing in the next 18-24 months.
 

Zepto is likely to achieve $1 billion in annualised sales in the next few quarters. It is now doing between 300,000 and 400,000 orders a day, while its average order value is Rs 400-500 at the moment.
 

Forty-four Indian startups became unicorns in 2021, but the number came down to 25 in 2022, according to Tracxn, a market intelligence platform. As funding slowed during the latter part of last year, so did the number of unicorns. As many as 19 unicorns were minted during the first half of 2022, compared to six in the second half.
 

Though Zepto has become the 110th startup to cross the $1 billion valuation threshold so far, only 92 – aside from this firm – are still holding on to their unicorn crown.
 

Asked about becoming the first unicorn of the year, Palicha said: "It’s a bit of a vanity metric, but it’s a nice indication of the work that the team has done. We are focused on long-term value creation. It’s not about what our valuation is today but what it will be in 2033."
 

The quick commerce model saw a boom in 2021 after the Covid-19 lockdown propelled demand for grocery delivery. Zepto, which was founded in 2021 by Palicha and Kaivalya Vohra, was among the few companies that rode this wave with its promise of 10-minute deliveries.
 

With its latest fundraise, Palicha, 21, has become the youngest ever CEO to build a billion-dollar business. However, this milestone, he said, did not evoke any notable feelings. "I find it to be pretty bizarre, but it’s not something that Kaivalya (Vohra) and I focus on or think about. The incoming capital is good, and the quality of our investors is good. We are just happy about the trajectory the business is on. We have a lot to execute. Maybe a decade from now I’ll think about the vanity of it, but for now it’s just execution," he said.
 

The new funds will help the company speed up its expansion into its existing geographies. Zepto operates over 200 dark stores across seven cities.
 

"We were in a pretty good place before this fundraise, but it (new funds) just gives us more options for expansion and a little more headroom to grow," Palicha said, adding that the expansion would not come at the cost of its profitability targets.
 

“The intent is not to spend for the sake of spending. It is to use the capital to make sensible, long-term investments, go deeper into our existing markets, and potentially launch a disciplined set of stores in a steady fashion in these markets. We’ll also do this while investing in new categories like Zepto Café,” Palicha added.
 

The firm will also boost its engineering and finance teams. Earlier this year, Zepto had rejigged its top management, elevating Vikas Sharma to the position of chief operating officer and appointing CoinSwitch’s Ramesh Bafna chief financial officer a month before. It now plans to expand these teams.
 

Although Zepto is not planning an aggressive expansion outside its existing markets, it plans to gradually expand into Tier-II and -III cities in the next three to four quarters.
 

These markets, Palicha added, also solved the attrition problem since “unemployment is meaningfully higher” here. This means that onboarding costs are also lower, which, in turn, means Zepto can offer customers even lower prices in Tier-II and -III cities compared to their metro counterparts.
 

Zepto’s fundraising also highlights how quick commerce is finally reaching its growth potential. Its competitors, like Zomato-owned Blinkit and Swiggy Instamart, recently indicated an improving demand for quick commerce.
 

“It’s all about execution. We are excellent at supply-chain efficiency, and we think that is the most important aspect of the business. We are maniacal about efficiency. There are no silver bullets about how we got to where we are,” Palicha said.