How Zepto came back as unicorn after being snubbed by investors initially

Aadit Palicha and Kaivalya Arora were just teenagers when they founded Zepto. Palicha still recalls how he was laughed out of one of the investor meets.

Fast-forward to the present day, Zepto is one of india's most recent unicorns to make it to the star-studded list, reports the Economic Times.

Not long ago, the idea of 10-minute delivery raised many eyebrows as it was not considered financially feasible for companies. Zepto was seen as the most susceptible firm compared to its competitors due to the cash crunch from venture funding.

On the other hand, its rivals - Blinkit, Swiggy, Dunzo, and Tata BigBasket had either very deep-pocketed investors or better capital cushions. Zepto made a staggering loss of Rs 390 crore in FY22. Going by metrics reported in the last few months, the company is expected to have improved on its margins since then. However, Zepto is yet to furnish its results for FY23.

Turnaround

Interestingly, one of the incoming investors had opted to wait longer, meanwhile, the other had straightaway turned down funding Zepto.

“When we initially looked at it, we had concerns around their unit economics and cash burn,” says Vivek Subramanian, partner and chief product officer, Goodwater Capital, who observes businesses of global grocery firms closely, told the publication.

“The challenge was really around unit economics. Which means that for every Rs 100 of sales, how much are you actually burning. They were actually burning quite a bit. Based on what we had seen at other companies, we encouraged Aadit (Palicha), to make a lot of improvements on how the business is run and actually get close to profitability,” Subramanian added.

Zepto last raised $200 million just a year ago and had approximately $130 million left in the bank when it started reaching out to investors for a fresh round this year.

“What we've seen in the last year and a quarter is fantastic progress in terms of improving every part of the business. We see hundreds and hundreds of companies every year and I think there is a handful that has ever achieved something like this. We saw the progress along the way. That helped us build a lot of conviction,” Subramanian was quoted as saying.

Zepto is currently also working on developing its in-house brands across categories like groceries, home essentials, and meat.

“3 per cent-4 per cent of our sales come from in-house brands. We want to get to 10 per cent-12 per cent soon,” says Palicha, who will be turning 21 soon.