Zomato is chalking out plans for aggressive investments in food delivery and new businesses such as cloud kitchens, a year after the company started cutting costs and pulled back its aggressive global expansion. The move comes as the Gurgaon-based company is looking to raise a new funding round after significantly increasing its net revenue and cutting burn rate over the past 12 months.
Zomato has roped in global investment bank Morgan Stanley to raise the new financing round, according to two sources familiar with the development. While the size of the round and valuation could not be determined, it's expected to be larger than its previous $60 million the company raised in September 2015 as it takes on Bengaluru-based rival Swiggy in the food delivery business.
Zomato's CEO Deepinder Goyal confirmed that the company has mandated Morgan Stanley. "We are raising this round to accelerate growth, we won't die if we don't raise capital," said Goyal in an interview, while declining to comment on the round size, adding that it has about $30 million in the bank.
"Investor interest in the last 2-3 months has been very high. We were planning to start fundraising in March-April next year, but given the inbound interest, it made sense to start now."
Zomato was valued at about $1 billion when it raised its last round from Singapore's sovereign wealth fund Temasek and tech focused investment firm Vy Capital. But since then, the funding environment cooled off and its valuation was questioned in HSBC report, pegging it at $500 million. Zomato and its largest shareholder Info Edge, which holds 47% stake, had disagreed with HSBC's valuation.
Goyal expects a "nice" increase in valuation given the improvement in Zomato's financials over the past 12 months. As compared to September 2015, the company's monthly burn rate has come down drastically from $9 million to close to $1 million per month right now. In May this year, Zomato's operating burn rate was $1.6-1.7 million.
According to Goyal, pulling back physical presence in markets like the US helped it cut $3 million in burn rate. And net revenues have increased by three times during the same period, currently standing at over $4 million (Rs 27 crore) per month. Between 2014 and 2015, the company expanded to over 23 countries through a slew of acquisitions.
The company plans to use half of the capital raised for delivery business, while the rest will be used to expand new businesses such as table reservations and special deals by restaurants. It also plans to launch cloud kitchens or infrastructure services for food delivery business, where it will lease space and invite restaurants to set up a kitchen without fixed costs. "These will be delivery-only food courts in areas where demand is very high but restaurants are not present," added Goyal.
Founded in 2008 by Goyal and Pankaj Chaddah, till last year Zomato was focused on monetization through advertising revenues earned from restaurants. Last year, it expanded into food delivery business which accounts for over 25% of its India revenue, and 17-18% of global revenue right now. Zomato is currently doing 1.5-million orders a month, and is growing at 20% month-on-month.
Online penetration within the takeout segment was only 2% in India while it was 20-30% in China, the UK and Canada, according to a Morgan Stanley report in February. The investment bank estimates that the online food aggregation business can grow from almost nothing in 2014 to $4.4 billion in 2020.
Zomato has roped in global investment bank Morgan Stanley to raise the new financing round, according to two sources familiar with the development. While the size of the round and valuation could not be determined, it's expected to be larger than its previous $60 million the company raised in September 2015 as it takes on Bengaluru-based rival Swiggy in the food delivery business.
Zomato's CEO Deepinder Goyal confirmed that the company has mandated Morgan Stanley. "We are raising this round to accelerate growth, we won't die if we don't raise capital," said Goyal in an interview, while declining to comment on the round size, adding that it has about $30 million in the bank.
"Investor interest in the last 2-3 months has been very high. We were planning to start fundraising in March-April next year, but given the inbound interest, it made sense to start now."
Zomato was valued at about $1 billion when it raised its last round from Singapore's sovereign wealth fund Temasek and tech focused investment firm Vy Capital. But since then, the funding environment cooled off and its valuation was questioned in HSBC report, pegging it at $500 million. Zomato and its largest shareholder Info Edge, which holds 47% stake, had disagreed with HSBC's valuation.
Goyal expects a "nice" increase in valuation given the improvement in Zomato's financials over the past 12 months. As compared to September 2015, the company's monthly burn rate has come down drastically from $9 million to close to $1 million per month right now. In May this year, Zomato's operating burn rate was $1.6-1.7 million.
According to Goyal, pulling back physical presence in markets like the US helped it cut $3 million in burn rate. And net revenues have increased by three times during the same period, currently standing at over $4 million (Rs 27 crore) per month. Between 2014 and 2015, the company expanded to over 23 countries through a slew of acquisitions.
The company plans to use half of the capital raised for delivery business, while the rest will be used to expand new businesses such as table reservations and special deals by restaurants. It also plans to launch cloud kitchens or infrastructure services for food delivery business, where it will lease space and invite restaurants to set up a kitchen without fixed costs. "These will be delivery-only food courts in areas where demand is very high but restaurants are not present," added Goyal.
Founded in 2008 by Goyal and Pankaj Chaddah, till last year Zomato was focused on monetization through advertising revenues earned from restaurants. Last year, it expanded into food delivery business which accounts for over 25% of its India revenue, and 17-18% of global revenue right now. Zomato is currently doing 1.5-million orders a month, and is growing at 20% month-on-month.
Online penetration within the takeout segment was only 2% in India while it was 20-30% in China, the UK and Canada, according to a Morgan Stanley report in February. The investment bank estimates that the online food aggregation business can grow from almost nothing in 2014 to $4.4 billion in 2020.
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