Zomato raises $200 million from Ant Financial

Zomato, online restaurant discovery and food delivery firm is taking pole position by raising $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. Ant Financial will hold around 18% stake in Zomato post the investment.

The deal will see Alipay invest $150 mn as primary capital and other secondary share transactions. 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 Middle East has been crucial in sealing the deal with Ant Financial which is looking to forge a strong global play through this fund raise.

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 fund raise is expected to be completed by April and signals a significant turnaround for the once beleaguered food tech sector that struggled to raise funds until two years ago.

South African media giant Naspers led a $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 mn round in Swiggy and may partner Tencent for the deal.

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 is because of parent Alibaba’s interest in world market seen as a strategic part of the payments business, as it has high frequency. Both 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.