Flipkart, a leading player in e-commerce, engaged in discussions with Zepto regarding a potential deal. However, as reported by ET, these discussions have come to a halt and are unlikely to be revived, according to sources familiar with the matter. Zepto, a prominent player in the fast-growing quick-commerce segment, reportedly decided to pursue a financial round instead of a strategic sale, as disclosed by individuals speaking on the condition of anonymity due to the private nature of the talks.
According to individuals familiar with the matter, the startup is presently negotiating with a group of private equity funds as well as current investors to finalize a new round of funding. Zepto is anticipated to secure a valuation of nearly $2.5 billion, nearly doubling that of its previous round, driven by the momentum in the quick commerce sector over the past few months.
Insiders familiar with the matter revealed that Flipkart, owned by Walmart, expressed interest in acquiring a majority stake in Zepto at a valuation below $2 billion, with the founders retaining control of the company.
One of the individuals cited mentioned, “The companies convened, and Flipkart extended a verbal offer to acquire a majority stake in Zepto… but the discussions for the deal didn’t progress further.”
Snackfax had previously reported on April 2nd that Zepto was re-entering the market to raise $250-300 million in capital, just six months after concluding a financing round that valued the company at $1.4 billion.
Continue Exploring: Zepto in talks for $300 Million funding, eyes valuation jump to $3 Billion
Insiders familiar with the matter revealed that Zepto has been in discussions with private equity firms like General Atlantic and sovereign funds such as the Abu Dhabi Investment Authority (ADIA), among others, regarding a potential investment.
Flipkart and General Atlantic refrained from providing comments. ADIA did not respond to inquiries.
Aadit Palicha, the CEO of Zepto, stated that the company is currently not considering strategic investors. He further mentioned that he wouldn’t comment on market rumors regarding external parties and investors.
Nearly all of the funds from the previous fundraising campaign are still in the bank, and the business is practically ebitda positive. Given that, Palicha stated, “We would not need to raise $500 million in any future fundraise or intention.”
He mentioned that any future fundraising efforts would primarily focus on strengthening the balance sheet in preparation for an initial public offering (IPO).
Sources familiar with the matter disclosed that Zepto has secured commitments from existing backers like Glade Brook Capital and Nexus Venture Partners among others.
These individuals further mentioned that the company is actively seeking an external investor to spearhead the financing round. Anu Hariharan, formerly leading Silicon Valley’s Y Combinator’s growth fund, YC Continuity Fund, may potentially invest in Zepto through her newly established firm, Avra. She currently serves as an independent director on Zepto’s board. Following the discontinuation of Y Combinator’s growth fund, in which Zepto was an investor, Hariharan departed from the renowned accelerator.
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Queries directed towards Hariharan remained unanswered.
A person familiar with the matter stated, “Zepto has informed potential investors that it might increase the size of the round to approximately $500 million… Internal commitments from existing backers stand at $200 million.”
Another individual familiar with the developments suggested that Zepto might consider a combination of primary and secondary transactions. Aadit Palicha and Kaivalya Vohra, the founders, collectively own over 20% of the company, initially launched as Kiranakart in 2020. The Mumbai-based company recently conducted a minor secondary round, during which some of its angel investors divested their shares.
Flipkart’s pursuit of a strategic deal highlights the sector’s significance for the Walmart-owned e-tailer, particularly in the instant-delivery segment where it has trailed. According to individuals familiar with the plans, Flipkart intends to introduce its own rapid delivery service by July and is currently establishing dark stores to facilitate deliveries within 30 minutes.
Continue Exploring: Flipkart challenges Zepto and Blinkit with quick commerce expansion
The Bengaluru-based company had previously engaged in discussions with Dunzo, a cash-strapped quick-commerce player in which Reliance Retail holds the largest stake, for a substantial investment. However, these discussions did not advance.
PhonePe, backed by Walmart, also approached Dunzo for its ONDC-led e-commerce venture of Pincode. However, the transaction fell through as the company’s board vetoed the proposal. The Open Network for Digital Commerce (ONDC) is an Indian government-backed marketplace aimed at empowering sellers and offline businesses to mitigate the dominance of Amazon and Flipkart.
Flipkart’s efforts to invest in or acquire a standalone player in the quick commerce industry are directed towards securing strategic control in a sector that is becoming progressively competitive within e-commerce. Snackfax has been covering Swiggy Instamart, Zepto, and Zomato’s Blinkit as they rapidly expand into new categories beyond groceries and staples, encroaching on the domain of horizontal e-tailers like Flipkart, Amazon India, and Meesho.
Continue Exploring: Quick commerce platforms Blinkit and Zepto expand into e-commerce, targeting fashion, beauty, electronics, and more
In the last month, numerous brokerage reports have highlighted the increasing significance of quick commerce for brands and the potential pressure it may exert on major e-commerce players. A recent report by UBS stated that quick commerce has transitioned from being a “good to have” to an “indispensable” aspect. According to the report, this emerging sector is projected to reach a Gross Merchandise Value (GMV) of approximately $34 billion by FY29, with a Total Addressable Market (TAM) potential of $520 billion.
The report stated, “We reckon that the three major quick commerce platforms presently hold a favorable edge in the essential infrastructure required—such as the deployment of dark stores and logistics infrastructure—though the possibility of a more fragmented market structure over the medium term cannot be discounted.”
By the end of FY24, the market is projected to have reached a size of $5 billion. “This would suggest a Compound Annual Growth Rate (CAGR) of 45% over FY24-29,” it further stated.