Zepto, a startup specializing in instant grocery delivery, has successfully secured $200 million in a recent funding round, elevating its valuation to $1.4 billion. This achievement is noteworthy considering the challenges faced by other companies in the same sector, many of which have struggled or folded. Zepto's funding round sets it apart as the first Indian startup to attain unicorn status in the current year.
The Series E funding for Zepto was spearheaded by StepStone Group, a prominent limited partner (LP) with involvement in various venture funds, including Nexus Venture Partners. Notably, this marks StepStone Group's inaugural direct investment in India. Existing supporters such as Nexus, Glade Brook Capital, and Lachy Groom, along with Goodwater Capital, also participated in the funding round.
Zepto's valuation has risen significantly since its previous funding round in May of the previous year, where it was valued at $900 million. Cumulatively, Zepto has raised approximately $560 million up to this point. Notably, the new funding round did not involve any secondary transactions, according to Aadit Palicha, Zepto's co-founder and CEO.
This funding achievement comes at a time when a considerable portion of global instant delivery startups—such as Gopuff, Jokr, Getir, Gorillas, and Instacart—have experienced a reduction in operations, faced plummeting private valuations, or even ceased operations altogether. Domestically, Zepto's rival, Blinkit, was acquired for a sum lower than its funding total after nearly a decade of activity. Dunzo, backed by Reliance Retail, has made cutbacks to its workforce and deferred employee payments following an ambitious investment of over $150 million to expand its dark store network—an endeavor that seems to have yielded unsatisfactory results.
So, what sets Zepto apart?
Aadit Palicha, in conversation with TechCrunch, emphasized the critical role of execution in supply chain-driven and operationally intensive businesses. Palicha asserted that factors like competition and the makeup of the company's ownership do not hold as much significance as the meticulous execution and discipline employed in managing the supply chain on a granular level.
Zepto's origins trace back to its co-founders, Aadit Palicha and Kaivalya Vohra, who established the company at the age of 19. The duo, having previously collaborated on several projects—including a ride-hailing app for school children—pulled Zepto out of stealth mode in late November 2021, after departing from Stanford University two years earlier.
Functioning as a comprehensive provider of various products, ranging from groceries to electronics, Zepto processes over 300,000 orders daily across seven Indian cities. The company, like many in its sector, relies on an array of dark stores situated in popular neighborhoods within cities. Palicha confirmed that the majority of these stores are currently generating positive earnings before interest, taxes, depreciation, and amortization (EBIDTA).
Remarkably, Zepto has significantly reduced its expenditure and aims to achieve company-wide EBIDTA positivity within 12 to 15 months, positioning itself for a potential IPO. The startup, with annualized revenue surpassing $700 million, has experienced a 300% year-on-year sales growth and anticipates reaching $1 billion in annualized sales in the upcoming quarters.
Kaivalya Vohra, Zepto's co-founder and CTO, highlighted the pivotal role of technology and product development in improving profit and loss metrics. Vohra emphasized the company's commitment to technological excellence, both in the supply chain and customer-facing aspects.
Zepto envisions its initial public offering (IPO) by 2025, aiming to be recognized as a profitable, expanding technology enterprise with a strong customer base.
Considering the ongoing economic slowdown that has dampened investor enthusiasm, Zepto's successful funding places it as the first Indian unicorn of the year. In the first half of 2023, Indian startups raised a mere $5.46 billion, marking a substantial 68% decline from the $17.1 billion amassed during the same period in 2022 and a drop from $13.4 billion in H1 2021, as reported by market intelligence firm Tracxn. This stands in contrast to the 65 Indian startups that achieved unicorn status between 2021 and 2022.