Japanese internet giant, SoftBank is considering a possible investment in restaurant discovery and food delivery firm Zomato, as per three people who are close to the development.
SoftBank’s talks with Zomato come six months after it first held conversations exploring a possible funding of up to $200-250 million in Bengaluru-based Swiggy.
A major force behind Flipkart and Paytm, SoftBank now aims to now play the kingmaker in the food delivery market with a likely investment of $200-400 million, the sources said.
“SoftBank discussed business metrics across Zomato’s three main business lines. One of the points of conversations revolved around Zomato’s international expansion over next few years,”
said one of the sources claiming that none of these discussions might even lead to something fruitful. A final decision would be taken by the year-end.
’“Speaking to prospective investors is part of every day at Zomato, and for that matter, every high-growth startup. Beyond that, we don’t comment on market speculation,”
said a spokesperson for Zomato.
The Indian food delivery sector
Global investment firms are making a beeline for the fast-growing Indian food delivery sector. In 2017, the sector recorded a 125% increase in order volumes to 4.5 lakh orders per day from about 2 lakh orders per day in 2016, according to estimates from RedSeer Consulting.
DST Global, which counts Facebook and Alibaba in its investment portfolio, is likely to join the ongoing round of fundraising at online food delivery platform Swiggy. The investment, for which talks are in an advanced stage, will see the startup’s valuation cross the $1-billion threshold.
The financing round for the Bengaluru-based company is now pegged at more than $200 million. Swiggy is also in talks with US-based Coatue Management, one of the world’s top-performing technology hedge funds,
The new round of funding will give the four-year-old startup significant financial support to maintain its lead over Gurgaon based rival Zomato, which last raised $150 million from Chinese e-commerce giant Alibaba’s payment affiliate Ant Financial in February.
Alibaba and Ant Financial may also further invest in Zomato, though it is not clear if they will infuse capital immediately.
“For Softbank, to deploy large pools of a capital of $100-400 million and move the needle, it needs core sectors such as (food delivery) that can absorb (such money) and give significant returns too,”
said K Ganesh, founder of startup factory Growth Story, promoter of cloud kitchen firm Freshmenu and grocery portal Big Basket.
SoftBank is also the largest shareholder in cab hailing applications Ola and Uber, both of which acquired and launched food delivery services last year, respectively.
The intensifying war of capital between Swiggy and Zomato comes seven months after talks of a possible merger between the two companies fell apart, last November.
While valuation differences and business alignment have made the merger conversations rather turbulent, people aware of the developments maintain a possible merger has not been completely ruled out yet.
SoftBank’s investment in any one of the two companies, will tip the balance of power in favour of the chosen one.
This influx of global capital into the food delivery space is similar to the investor exuberance for the ride-hailing aggregation sector during 2014 and 2015.
Investors also point to the early frenzy in the e-commerce market where a capital rush followed companies like Flipkart even as they burnt significant cash on every single order but Flipkart has shown that efficient demand fulfilment can create copious amounts of value.
Experts opine that the food delivery sector moreover has the added advantage of high frequency (unlike e-commerce) thus creating customer loyalty.