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Zomato eyes fresh investments to expand its food delivery business, setup cloud kitchens

deepinder goyal / zomato
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While the food-tech ecosystem in India might have faltered in the past year, it now seems to have matured. It is back at gaining momentum with new products and business models. Zomato, one of the unicorns of the food-tech space had foiled its global expansion plans earlier this year. But the company is now aggressively chalking out plans for investment in food delivery and other new businesses, reports ETtech.

The consolidation of its overseas services to focus on primary areas, including India and the Middle East has proven extremely fruitful. Over the past twelve months, Zomato has significantly reduced its cash burn rate while adding to a significant uptick in net revenues. Now the company has stabilized and is looking to raise a new round of funding. It has, thus, hired the services of global investment bank Morgan Stanley to look for prospective investors.

This development related to the fundraising has been confirmed by the founder and CEO of Zomato, Deepinder Goyal himself. The chief exec has confirmed that the company has mandated Morgan Stanley but has declined to comment on the valuation(and funding amount) that the company is targeting. He further adds that the company still has a loaded $30 million war-chest and comments:

We are raising this round to accelerate growth, we won’t die if we don’t raise capital. 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.

Though there is currently no word on the valuation, Goyal believes that Zomato would see a ‘nice’ increase due to the improvement in overall financials in the past year. The company had previously secured a staggering $60 million at a billion dollar valuation from the likes of Singapore government’s sovereign wealth fund Temasek and investment firm Vy Capital.

It has, however, since then been faced with a valuation markdown by HSBC, who slashed the same to half, pegging the company at just a meager $500 million. Zomato and its largest investor Info Edge both disagreed with this valuation markdown and Goyal took a jab at HSBC by saying ‘nobody who knows our business, has marked down our valuation.’

Cloud Kitchens plus Delivery

Zomato has neither revealed how much attention has the company been receiving from investors nor does it plan to reveal the estimate of funds it plans to secure for its expansion plans. Yes, expansion. This time of the delivery one instead of the restaurant aggregation business — a much wiser decision. It recently celebrated crossing the million order per month milestone on its platform.

The company plans to use half of the proceeds raised in the upcoming funding round towards the expansion of its delivery business but the remaining amount is will be used for towards its existing table reservation business and setting up of other opportunities. Zomato is planning to introduce the concept of cloud kitchens(or infrastructure services) where the company will invite restaurants to lease empty spaces and set up a kitchen for food delivery purposes in high demand areas.

These will be delivery only food courts in areas where demand is very high but restaurants are not present,

adds Goyal in his statement.

Zomato might have started off as a restaurant aggregator but its food ordering bets seem to be paying off in the long run. Though the company has been booking losses in the past couple quarters, the ordering business has soared and now accounts for over 20 percent of the total revenue share. The company has recently also acquired a logistics-tech startup called Sparse Labs to introduce real-time tracking for both users and restaurants.

The table reservation business, with huge margins, has also started catching pace and is growing at exceptional pace. Thus, Zomato is looking to scale these offerings instead of jumping into launching another food-tech focused product.

A hands-on guy fascinated by new apps, technologies and enterprise products.

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