Mon. Jan 17th, 2022

Zepto, a Mumbai-based startup offering a 10-minute instant delivery service, has more than doubled its valuation from $225 million less than two months ago to $570 million as it expands into newer cities.

Y Combinator’s Continuity Fund led the $100 million Series C round in Zepto, the two said Monday. Glade Brook, Nexus, Breyer Capital, Lachy Groom, Global Founders Capital and Contrary Capital also participated in the round, bringing current proceeds to $160 million.

The startup, founded by two 19-year-old entrepreneurs who left Stanford last year, came out of stealth mode in November. But long before it started talking about the company, Zepto had sparked huge interest from the local startup community as people started voicing their opinions about the company.

Zepto, whose name playfully uses a mathematical term to describe the company, it offers a 10-minute grocery delivery service, a category that has become red hot in several parts of the world in recent quarters. Heavily backed players Swiggy and BlinkIt (formerly known as Grofers) have also started delivering groceries in recent months.

But neither had chosen this company until Zepto arrived and started aggressively winning over customers. Zepto’s arrival on the scene was also serendipity. Aadit Palicha and Kaivalya Vohra had returned to India for a break shortly before the pandemic swept across the nation.

The teens, who had previously collaborated on a number of projects, including a commuter app for schoolchildren, were suddenly locked in their homes in Mumbai. As the pandemic raged, the two struggled to get their groceries, even when grocery deliveries, deemed essential by the local government, were still allowed in much of the country.

“We had a feeling that the online game of the Indian grocery delivery service, one of the world’s largest, was struggling with some gross execution flaws,” Palicha told BestFitnessBands in an earlier interview.

In an interview last week, Palicha said the startup is overwhelmed with the support and excitement it is getting from customers, but it doesn’t want to “get complacent.”

“We are a bit overly critical of ourselves and hold ourselves to very high standards. People are happy to get their deliveries in 10 minutes or less, but can we continue to focus on scaling our SKUs and improving our unit economy?” he said. (But at the same time, Zepto is careful about keeping its employees and delivery partners happy, he said, pointing to the retention and internal feedback.)

Vohra said its monthly buyer retention rate is 65% and has built a network of micro warehouses, each of which has the capacity to handle more than 2,500 orders per day.

At stake is the Indian e-grocery market estimated to be worth $25 billion by 2025, according to a note from Sanford C. Bernstein. “Online grocery penetration is expected to reach ~3-5% by 2025 from less than 1% today. Long-term structural factors remain strong: rising income and wealth, lower consumption levels, e-commerce penetration (~30% CAGR) and a young population (~50% under 25). Grocery spending as a percentage of income remains high at ~30%,” the analysts wrote.

Zepto’s dark shop. (Image Credits: zepto)

Zepto operates today in Bangalore, Delhi, Gurgaon, Chennai and Hyderabad and plans to expand to Pune and Kolkata soon. To ensure instant deliveries, it has set up a maze of more than 100 dark shops in these cities that it says are optimized for fast deliveries.

“We’re looking at a pretty crazy run rate,” he said. “In the past month and a half, we have expanded our company tenfold. And now we are working to grow another 10 times by February or March,” says Palicha.

Another thing that is going in the right direction for Zepto is the talent it has managed to attract in recent months. Several high-profile executives from Flipkart, Amazon Uber, Dream 11 and Pharmeasy have joined the startup.

Palicha said one of the reasons why so many executives have joined Zepto is that it has enabled many who had moved from Mumbai to Bangalore to return to their home city. But the startup’s aggressive growth, disciplined execution and ambitions have made it appealing to those with similar tastes, he said. “We were able to walk the walk,” he said.

“We are excited to double down and lead this round in Zepto (YC W21). Since Aadit and Kaivalya have gone through Y Combinator, we have found them to be exceptional founders who bring relentless focus and “Doordash-esque” execution to the fast trading model,” Anu Hariharan, a partner at Y Combinator, said in a statement.

“Originally launching with a different model, they quickly switched to fast trading in August 2021 and are now adding 100,000 new customers every week, 60% of whom are women. Their attention to detail on the logistics experience is second to none and this has enabled them to scale up to most major metros in just 5 months. Simply put, we are confident that Zepto will win in this space in the long run.”

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