When a big company intends to enter a new business segment from scratch, it often prefers to acquire an already existing business that has gained some traction in the market. Flipkart recently exemplified this strategy with a reported offer of under $2 billion to acquire Zepto. However, this potential deal between Flipkart and Zepto fell through, sources familiar with the matter revealed.
As a result of the failed acquisition, Walmart-owned Flipkart is now preparing to launch its own quick commerce service to compete directly with Zepto and other players in India’s rapidly expanding quick commerce sector.
Meanwhile, Zepto is reportedly raising funds at a valuation of nearly $2.5-$3 billion, doubling its previous round valuation of $1.4 billion.
What Exactly Went Wrong?
Sources close to the negotiations indicated that Zepto opted for a new financial round instead of a strategic acquisition, preferring to maintain its independence.
When Flipkart proposed acquiring Zepto for less than $2 billion, the quick commerce firm countered with a valuation of $3 billion, highlighting a notable disparity in their respective assessments of Zepto’s worth. Despite this valuation gap, Zepto’s ultimate decision not to proceed with the acquisition was primarily due to Flipkart’s insistence on acquiring a majority stake in the company.
Flipkart was determined to secure a significant shareholding that would allow them influence over Zepto’s operations while ensuring the founders retained leadership. Ultimately, the talks ended when Flipkart communicated that they were not interested in a deal that would result in a minority stake, leading Zepto to pursue alternative financing options.
Previously, Flipkart had discussions with Dunzo, a cash-strapped quick commerce player partly owned by Reliance Retail, for a substantial investment, but these talks did not progress. Similarly, Walmart-backed PhonePe’s attempt to engage Dunzo for its ONDC-led e-commerce venture was thwarted by the company’s board.
What’s Next For Zepto?
Zepto is gearing up to raise $250-300 million in capital just six months after closing a financing round valued at $1.4 billion. The quick commerce startup has been engaging with private equity firms like General Atlantic and sovereign funds such as the Abu Dhabi Investment Authority (ADIA), among others, for potential investments.
However, Zepto’s CEO, Aadit Palicha, has clarified that the company is not actively seeking strategic investors at the moment and has refrained from commenting on market rumours regarding external parties and investors.
“We have almost all the capital from the previous fundraise still in the bank while the company is close to EBITDA positive. With that context, in any future fundraise, we would have no intention or need to raise an amount as large as $500 million,” Aadit Palicha explained.
Therefore, Zepto’s future fundraising efforts will primarily focus on preparing the balance sheet for a potential initial public offering (IPO).
Sources familiar with the situation have disclosed that Zepto has already secured commitments from existing backers, such as Glade Brook Capital and Nexus Venture Partners, for the upcoming fundraising round.
Although the fiscal 2024 results have yet to come, Zepto’s growth trajectory can be gauged from its financial performance in previous years since its inception.
In FY23, Zepto’s revenue from operations skyrocketed 1335.5% YoY to Rs 2,024 crore. However, this growth was accompanied by a substantial increase in total expenses, which surged by 528.5% YoY from Rs 533 crore to Rs 3,350 crore. Due to these mounting expenses, Zepto’s losses more than tripled, rising from Rs 390 crore in FY22 to Rs 1,272 crore in FY23.
In a Nutshell
Flipkart’s history of acquiring startups like Myntra, Jabong, eBay India (now Walmart-owned), and others reflects its aggressive approach to expanding into new segments and staying ahead of the competition. The company’s interest in Zepto through a strategic deal indicates the future potential of this rapidly growing quick commerce sector.
Players like Swiggy with Instamart, Zomato with Blinkit and Zepto are already dominating the quick commerce market in India. These companies have surpassed the traditional boundaries of groceries and staples, posing significant challenges to e-commerce giants like Flipkart, Amazon, and Meesho.
India’s quick-commerce sector has witnessed remarkable growth, with its Gross Merchandise Value (GMV) skyrocketing from a mere $0.04 billion in 2019 to an impressive $2.8 billion in 2023, as reported by Redseer. This exponential growth is projected to accelerate further over the next two years, driven by an influx of new players vying for a significant market share. The increasing competition and expanding customer base indicate a promising trajectory for the quick-commerce sector in India.
