Zepto Secures $450 Million Funding Round, Aims for IPO

Zepto, the burgeoning quick commerce platform, has successfully raised $450 million in a mixture of primary and secondary transactions, as confirmed by Founder and CEO Aadit Palicha. This funding round has notably pushed the company’s valuation up to $7 billion, marking a significant increase from its $5 billion valuation just a year ago.

Key Highlights of the Funding Round

According to documents obtained from the Registrar of Companies, Zepto has garnered nearly $300 million through primary investments. The company has also expanded its employee stock option pool (ESOP) by approximately $170 million, bringing it to a total of more than $500 million at the newly established valuation.

Investors Leading the Charge

The latest funding round was led by California Public Employees’ Retirement System (Calpers), a U.S.-based pension fund, alongside Silicon Valley venture capital firm General Catalyst. Other notable contributors to this funding round include existing backers such as Avenir, Gladebrook, Lightspeed, and the Stepstone Group.

Interestingly, Calpers typically does not engage in direct investments; instead, they serve as a limited partner in funds like General Catalyst and Lightspeed, which directly support Zepto.

IPO Plans on the Horizon

With the closure of this funding round, Zepto is gearing up to file its draft red herring prospectus in the coming quarters. “We identified an opportunity to solidify our balance sheet in a relatively low-risk manner, prompting us to secure this funding before proceeding with our IPO plans,” stated Palicha. Initially, the company aimed to file earlier; however, after witnessing a remarkable 200% increase in growth and improved profitability across numerous stores, they opted to raise capital first.

Palicha elaborated, “If we were to raise $600-700 million, that could only come through an IPO. Given this latest opportunity, we realized we could comfortably raise about $500 million within private markets.”

Financial Stability Post-Round

Following this funding round, Zepto now holds around $900 million (approximately ₹8,000 crore) in cash. To date, the startup has amassed nearly $2 billion in financing over the past 18 months, inclusive of secondary transactions.

Growth Strategies for the Future

As Zepto embarks on its growth journey, plans are in place to expand its network of dark stores while simultaneously boosting order volumes. Currently, the company operates around 1,000 dark stores, with ambitions to add “a few hundred” more within the next year. In comparison, rival Blinkit, the current leader in the quick commerce sector, has 1,814 micro warehouses and targets a count of 3,000 by March 2027.

Ensuring Sustainable Volume Growth

Palicha expressed optimism about the future, stating, “Our order volumes are expected to grow significantly in the upcoming quarters. We believe that multiplying our order numbers with fewer stores is a more efficient approach. Thus, we aim to launch several hundred more dark stores while concentrating on increasing our order volumes.” Zepto currently processes between 1.6 to 1.7 million orders per day, enjoying a growth rate of 20%.

Challenges with Zepto Cafe

It’s worth noting that Zepto’s 10-minute food delivery service, Zepto Cafe, had to scale down its operations due to challenges related to product sourcing and a shortage of trained kitchen staff. Although it contributes a modest portion to the company’s overall revenue, Palicha indicated that Zepto Cafe is on track to achieve an annualized revenue run rate in the “four-digit crore” range.

“All metrics regarding Zepto Cafe are trending positively. If all goes well over the next few quarters, we expect to showcase a robust online quick service restaurant (QSR) business, adding further strength to Zepto’s core quick commerce operations,” he concluded.

Conclusion

With strategic funding and plans for future growth, Zepto is well-positioned for the coming phases in its business journey. The company’s focus on expanding its dark store presence and enhancing order volumes highlights its commitment to solidifying its status in the quick commerce space.

Focus Keywords: Zepto, quick commerce, funding, IPO, dark stores, California Public Employees’ Retirement System, General Catalyst.

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