Zomato secures $200M from Ant Financial

India’s food delivery market is steaming up as investors flock to the space and Zomato is taking pole position this time around.
 
The online restaurant discovery and food delivery firm has raised $200 million from Ant Financial, the payments affiliate of Chinese e-commerce giant Alibaba. The deal values Zomato at $1.1 billion with a pre-money valuation of $945 million according to two sources, finally earning it the elusive unicorn tag.
 
ET was the first to report in its edition dated September 5th, 2017 that the Gurgaon-based food aggregator was in talks to raise $200 million from Ant Financial and Alibaba at a valuation of around $1.1 billion.
 
Ant Financial will hold around 18% stake in Zomato post the investment.
 
The deal which is a mix of primary and secondary share transactions will see Alipay invest $150 million as primary capital. Existing investor Info Edge will dilute its holding worth $50 million in Zomato. Post the dilution, Info Edge will hold about 31% in Zomato but will continue to retain its position as the single largest shareholder in the company.
 
Zomato’s strong presence in South East Asia and the Middle East has been crucial in sealing the deal with Ant Financial which is looking to forge a strong global play through this fundraise.
 
The capital raise comes over two years after the Info Edge backed company last raised $60 million from Temasek and Vy Capital in September 2015, one which valued Zomato at about $960 million.
 
The fundraise is expected to be completed by April and signals a significant turn around for the once-beleaguered food tech sector that struggled to raise funds until two years ago.
 
South African media giant Naspers led an $80-million round in Zomato’s main rival Swiggy last year, while global tech giants such as Uber and Google also launched operations in this market.
 
ET had reported in January that Naspers is in talks to lead a $150-200 million round in Swiggy and may partner Tencent for the deal.
 
Over the last one year, Zomato has been steadily fortifying its balance sheet with revenues surging 80% to Rs 332 crore in FY17. But the game changer has been its ability to sizably shrink its annual operating burn by a whopping 81% to Rs 77 crore in FY17 from the Rs 441 crore it burned in FY16. Zomato also significantly scaled back on operating losses which fell 34% to Rs 389 crore in FY17 from Rs 590 crore in the previous year.
 
But Zomato which earns a lion’s share of its revenues from its advertising business, is also locked in a battle for market leadership in the food delivery space, which is more capital intensive. Zomato claimed to have delivered over 3 million monthly orders for the first time in July 2017 compared to competitor Swiggy's claims of over 4 million monthly orders.
 
Zomato has been looking to increase its share of self-fulfilled deliveries through its acquisition of hyperlocal delivery startup Runnr to over 10% of its deliveries.
 
Ant Financial’s interest in Zomato comes as parent Alibaba is aggressively expanding its presence across the world, especially in markets like Southeast Asia. Food delivery is seen as a strategic part of the payments business, as it has high frequency. Alibaba and Ant Financial have made similar bets in their home market as they have poured more than $2 billion in Chinese food ordering platform Ele.me since 2016.
 
The last 2 months alone have seen sweeping changes in India’s food technology sector which has become a 5-way battle between top guns including Swiggy and Zomato along with Ola-Foodpanda, UberEats and Google Areo, all looking to claim the top spot.
 
However, the challenges with the food delivery market in India are two-fold with lower frequency of orders and leaner average order values making the race to the front an extremely slow one. Players will need to build a mix of both content as a hook to attract customers and delivery to make money, thus explaining the intense rivalry between the current top aggregators Zomato and Swiggy.
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