Food-tech startup Zomato Media Pvt. Ltd is in talks to raise $400 million, largely from existing investors Ant Financial and Temasek, at a valuation of as much as $2 billion, as the fast-growing online food ordering space continues to attract investor attention, according to two people close to the development.
The development comes as Zomato’s arch-rival Swiggy on Thursday announced a fresh funding of $210 million, the largest by a food-tech startup. Apart from existing investors, Zomato is also in talks with Alibaba Group for the existing funding round that could value the company anywhere from $1.6-$2 billion pre-money, the people cited above said.
Zomato declined to comment.
Mint reported in April that both Swiggy and Zomato were in talks to raise next round funds within two months after raising $100 million and $150 million, respectively.
The food technology sector, which not so long ago saw capital dry up as investors globally became jittery about the space given its poor unit economics, has once again bounced back on the back of new entrants such as UberEATS and Ola’s acquisition of Foodpanda.
Though experts remain divided over the valuation of food-tech startups in India, both Swiggy and Zomato are aggressively expanding in newer cities, launching newer products and burning cash to win customers.
An HSBC report dated April 2018 expects Zomato’s operating burn to double in fiscal 2019.
“…we expect competitive intensity to remain high for the next 18-24 months and expect a surge in customer acquisition costs and increased cash burn across players. On these lines we estimate Zomato’s FY19 operating loss at (compounded) $20 million and on the revenue side we believe the company should be able to maintain its present 58% growth rate, albeit at the cost of higher cash burn,” wrote Rajiv Sharma, an analyst at HSBC Securities and Capital markets.
“The company said operating burn increased towards the end of FY18, suggesting that growth seen in delivery segment may be driven by discounts at present and there is a clear need for Zomato to increase investments in the last mile to sustain growth momentum,” he added.
HSBC expects the online food tech aggregators to grow at a CAGR of compounded 63% to $1.5billion.
Zomato, which is present in 23 countries, earns revenues from advertising and food delivery.
Zomato almost doubled its revenue to Rs 399 crore in the year ended 31 March 2017 and saw a drop in losses to Rs 389 crore from Rs 590 crore, a year ago.
Zomato currently does about $13.4 million worth of orders a month.
Swiggy currently operates in 15 cities and continues to expand its reach to newer cities. It claims to have more than 35,000 restaurant partners on its platform and a delivery fleet of over 40,000 in Bengaluru, Delhi, Mumbai, Pune, Hyderabad and Kolkata.
This article was first published on livemint.com.