Social restrictions compelled by the pandemic have created enormous opportunities for food delivery apps like Zomato and Swiggy. These businesses, successful and in-demand now, experienced some initial hiccups in the first phase of the lockdown, but orders then grew exponentially as the days passed. Now Zomato is looking to raise $100 million from US investment firm Tiger Global Management to further its market size.
This $100 million fund is likely to be followed by an equal installment before Zomato goes public next year. According to the anonymous source, Zomato and Tiger Global are engaged in preliminary talks to raise a total of $200 million. According to the source, no term sheets have been exchanged yet, and both the firms are currently discussing terms.
As per the current deal, Tiger Global values Zomato at $3 billion. Tiger Global holds investments in some of the emerging startups in India, including Flipkart, Ola, Freshworks, and PolicyBazaar. In addition, Zomato is eyeing another $100 million investment from its existing investor Temasek of Singapore, which may is expected to have further clarity by August end. Zomato’s current total funding amount stands at $972.6 million.
On road to a mega IPO
There has been no official confirmation of the story as yet from either Zomato or Tiger Global. Experts believe these three big-ticket capital raises will be crucial for Zomato’s scheduled IPO next year. Zomato may not show outright profits, but a path of profitability through minimal cash burns may work for Zomato once it goes public.
Experts believe that the three big-ticket capital raises will be crucial for Zomato’s scheduled IPO next year.
The company was earlier in talks with Ant Financial, a unit of Chinese e-commerce giant Alibaba Group Holding. However, after the Sino-Indian border tensions and emerging strong anti-China sentiment in India, Zomato began looking beyond Chinese investors.
Watch: Zomato staff protest in Kolkata against China
Swiggy’s investment game
Zomato’s biggest competitor, Swiggy, is not behind in the investment game either. In February, Swiggy had raised $113 million, led by existing investor Prosus N.V. It also benefited from the attention of Meituan Dianping and Wellington Management Company.
In April, Swiggy raised $43 million from one round, which saw participation from Ark Impact, Korea Investment Partners, Samsung Ventures, and Mirae Asset Capital Markets. Swiggy was supposed to utilize the funding on its newly started grocery delivery, concierge services, and micro-delivery arm SuprDaily. Swiggy’s total funding amount stands at $1.6 billion. Swiggy’s valuation stands at $3.6 billion while Zomato is not far behind at $3.25 billion.
As the COVID pandemic intensified, Swiggy laid off 1,100 employees. For the financial year 2019, Swiggy reported an annual loss of 2367 Crore INR; whereas Zomato’s loss for the same year was around 1000 Crore INR. Zomato’s new investment haul may provide more breathing-room.
Watch: After Zomato, Swiggy laid off 1,100 Employees
Zomato’s funding haul may leave Swiggy behind
Exploring new territories is a prime aim for these food delivery businesses. Both Zomato and Swiggy aim at expansion, prompted by the growing user base in Tier II and Tier III cities. Swiggy has launched new initiative ‘BrandWorks’ which will co-create delivery brands with partner restaurants.
When the lockdown began, Zomato and Swiggy pivoted to delivering other essentials, including groceries. Sustaining a different vertical of business may get tricky without easy access to funds. Zomato’s recent raise may help on this front as well.
When the lockdown began, Zomato and Swiggy pivoted to delivering other essentials, including groceries.
For the whole food delivery sector, the big deal is the emergence of cloud kitchens. It allows businesses to operate without being heavily dependent on restaurants. Swiggy has recently opened 1000 cloud kitchens all across the country in partnership with existing restaurant affiliates. In comparison, Zomato has 650 cloud kitchens. Zomato may take the opportunity to open a higher number of cloud kitchens, catering not only to the needs of big cities, but also Tier II and Tier III cities.