Food delivery apps Swiggy and Zomato have accepted smaller cheques of $5-$10 million from a pool of investors to beef up cash reserves, as they continue to fight a bruising battle for market share in the online food delivery business amid a lockdown induced by the Covid-19 pandemic.
The capital infusion comes at a time when the outbreak has significantly dented order volumes and fund-raising appetite.
On Monday, Swiggy said it had raised an additional $43 million from Ark Impact, Korea Investment Partners, Samsung Ventures and Mirae Asset Capital Markets, thereby closing its latest $156 million funding round led by existing investor South African internet giant Naspers. “Our focus remains to execute on our vision while building a sustainable path to profitability,” said Rahul Bothra, Chief financial Officer of Swiggy.
On the other hand, Zomato said in regulatory filings last Friday that it had raised $5 million from Pacific Horizon Investment Trust, a fund managed by British investment manager Baillie Gifford. In February, Ant Financial had led a $150 million round in Zomato at a pre-money valuation of $3 billion, according to a BSE filing by InfoEdge, an early investor in Zomato. However, only around $50 million of the committed corpus has come in from Alibaba’s affiliate till now.
In fact, both the food ordering platforms were in talks to close rounds of $400 million or more during the last six to eight months but have been able to mop up far fewer cheques given the market conditions.
Valuations, too, have only inched up marginally. While Swiggy is valued at about $3.6 billion, Zomato’s is close to $3.2 billion.
“The reality is that capital is going to be more difficult to come by, so in this scenario even drip funding makes sense… it also ensures that (in a way) you hedge your capitalisation table or cap table, and keep in place the possibility of larger contributions in the future from these investors,” said Ankur Pahwa, Partner, Ernst & Young.
Over the last six months, investors have asked tougher questions while giving out large cheques and steered away from pumping too much capital into loss-making businesses, especially in high-burn areas like food delivery.
Uber India sold its business to Zomato earlier this year, while Ola-owned FoodPanda exited its food delivery business last year after deploying significant capital.
Both Swiggy and Zomato had been focussing on cutting cash burn over the last eight months — from a peak of $45 million a month in March last year to about $20 million in December.
Across these platforms, discounts have also come down, while commissions and new revenue streams like advertisements have been amplified.
In fact, after the government announced the ongoing 21-day nationwide lockdown, Zomato chief Deepinder Goyal wrote to employees seeking a voluntary cut in salary to increase runway.
Separately, ET reported last week that food delivery orders had plunged by about 70% to under 1 million a day in the wake of the Covid-19 pandemic. Additionally, the food delivery businesses also face challenges including winning back customer trust about food hygiene and bringing more restaurants on to their platforms.
Read: Food delivery firms reassure customers with contactless delivery, body temperature checks
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