Zomato is seeking funding between US$ 500 million to US$ 1 billion. Closing this round ASAP is extremely important for Zomato, as it tries to nullify the huge advantage gained by Swiggy in 2018.
The funding war in the foodtech space reached astronomical heights in 2018, primarily focused on two companies – Zomato and Swiggy. While Zomato secured US$ 410 million in funding in two rounds over the year, Swiggy clearly surged ahead by miles with three funding rounds of US$ 100 million (February), US$ 210 million (June) and US$ 1 billion (December).
As a result, Zomato has hit the ground running in 2019. It is engaged in intense negotiations with investors to raise an amount between US$ 500 million to 1 billion according to reports citing sources. These investors include Chinese PE firm Primavera Capital and current investor Ant Financial.
In its last funding round, Zomato was valued at US$ 2 billion, while Swiggy achieved a valuation of US$ 3.3 billion in its December round. A source from Zomato said, “There is a new round that we are talking to potential investors (including Ant Financial) for our new fundraise. This will be at a premium to the last round as the company has more than doubled in size since the last round was finalised.”
The source also admitted that Zomato had not expected Swiggy to manage a US$ 1 billion round, and had expected them to receive around US$ 600 million in primary money. The funding of Swiggy has compelled them review their financing.
Both the funding rounds last year came from Ant Financial, and the Alibaba subsidiary now has around 28% stake in Zomato. That is ostensibly the reason why Zomato is considering outside support.
Zomato claimed that it overtook Swiggy in October with more than 21 million orders a month. Both companies have placed over 50,000 restaurants each on their platforms. Funding is a critical success factor for both Zomato and Swiggy, who are losing US$ 30-40 million in cash on a monthly basis. Besides this, they face competition from taxi aggregators Uber and Ola which are backing their platforms Uber Eats and Foodpanda respectively.
While Swiggy was the pioneer in terms of providing delivery services to restaurants, Zomato has aggressively ramped up its delivery fleet to 150,000 in 2018, compared to 120,000 for Swiggy. In 2018, Zomato made a foray into the corporate cafeteria sector by acquiring TongueStun.
It is also exploring the drone delivery space with TechEagle. However, while drone delivery makes for good optics, it is a very long term play. A commercial drone costs a minimum of Rs 60,000 and an industrial one can go beyond Rs 10 lakh. In comparison, a delivery associate of Zomato gets less than Rs 20,000 a month. Moreover the policy for drones in India is still hazy and it could take 3-5 years for Zomato to be able to use drones effectively.
In the short term, it is still a war of attrition in the foodtech sector, where Swiggy has taken a huge and possibly decisive advantage. Zomato needs all the willpower and resources it can muster to keep up.