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Will Alibaba’s planned investment in Zomato disrupt the food-tech space?

05 September, 2017

Online restaurant finder and food delivery platform Zomato may receive a whopping $200 million (Rs 1,283 crore) from Chinese e-tailing behemoth Alibaba, media reports said.

Mint and The Economic Times, cited unnamed people saying that Zomato will be valued at $800 million-$1 billion for this round of funding by Alibaba’s payments arm Ant Financial Services Group, or Alipay.

Email queries to Alibaba did not elicit any response, while a Zomato spokesperson told VCCircle that the company “does not comment on rumours and speculations”. Zomato has been in the market to raise funds since the beginning of 2017.

Zomato’s last funding round in September 2015, saw the company raise $60 million (Rs 390 crore) from Singapore government’s investment company Temasek and existing investor Vy Capital.

Zomato had narrowed its losses to Rs 389 crore for 2016-17 from Rs 590.1 crore in the year-ago period, according to the annual report of its largest shareholder Info Edge (India) Ltd. The company had posted revenue of Rs 332.3 crore for 2016-17, up 80.6% from Rs 183.9 crore in the previous fiscal year.

If the deal goes through, it is expected to change the Indian food-tech industry, more so, as Alibaba’s entry into the space may put pressure on other players such as Swiggy and Foodpanda India.

“It is very similar to the e-commerce marketplace scenario we are seeing. The third and fourth players have to really slug it out. There is no more space for a third or fourth player in the country. It is all about scale. There is going to be consolidation. The food-tech space is smaller than the e-commerce space. With big investors putting money in the biggest player will make it even bigger,” says Anup Jain, managing partner at consumer and retail consultancy Redback Advisory Services.

In May, online food ordering startup Swiggy.com, which is run by Bengaluru-based Bundl Technologies Pvt. Ltd, had secured $80 million in a Series E round led by South African technology group Naspers.

The round also saw the participation of existing investors, Accel India, SAIF Partners India, Bessemer Venture Partners, Harmony Partners and Norwest Venture Partners.

So far, Swiggy has raised about $155.5 million, including the $15 million it had secured in a Series D round from Bessemer Venture Partners, Accel India, SAIF Partners and Norwest Venture Partners in September 2016. It had raised $35 million in Series C funding in January 2016.

Swiggy had posted losses of Rs 137 crore in 2015-16, on a total income of Rs 23.6 crore. It had net sales of Rs 20 crore.

Rocket Internet-backed food delivery firm Foodpanda India, too, saw its losses widen in 2015-16, even as its revenues jumped to Rs 37.81 crore from Rs 4.7 crore in the year-ago period. Its losses during the period under consideration jumped four times to Rs 142.6 crore from Rs 36 crore.

So far, Foodpanda has raised $310 million, including the $110 million it had raised in 2015 from Goldman Sachs Investment Partners. In December 2016, Delivery Hero had acquired Naspers-backed Foodpanda from Rocket Internet, making it part of a $3.1 billion group.

In an earlier interview, Foodpanda India chief executive Saurabh Kochhar had not ruled out the possibility of partnering with rival firm Swiggy, which is also backed by Naspers.

When asked if having a common investor could trigger a collaboration between the two rivals, Kochhar had told VCCircle that consolidation is a key ingredient for success, but “it was not immediately on the cards”.

Foodpanda India has also been looking for strategic options, including a sale, The Times of India had reported last year. However, Kochhar had denied any such talks. In fact, the entry of UberEATS and Google in the online food business is a validation for the sector, Kochhar had told VCCircle.

“I think Zomato will use these funds to expand overseas and will look for acquisitions. That is the nature of this impending investment. Swiggy and UberEATS will now have to deepen their pockets as well,” Jain added.

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Will Alibaba’s planned investment in Zomato disrupt the food-tech space?

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