Instant grocery delivery startup Zepto will raise around $650 million from existing and new investors at a valuation of $3.5 billion, underscoring the high interest in India's booming quick commerce sector, people aware of the development told Moneycontrol.

The existing investors include StepStone Group, Nexus Venture Partners, and Glade Brook Capital, while the new investors would be Avenir Growth, Lightspeed Venture Partners, DST Global, and Avra, the sources added. The fresh round will more than double Zepto's valuation from $1.4 billion to $3.5 billion as investors remain bullish on the company's growth potential in the quick commerce segment. The large-ticket fundraising comes even as several late-stage companies still recover from a funding winter that has gripped the Indian startup ecosystem since late 2022.

For Zepto, however, the case seems to be different.

This will be the company’s second large fundraiser in under a year. The Y Combinator-backed startup raised $231 million in August 2023 from StepStone Group, Goodwater Capital, and other investors at a valuation of $1.4 billion.

Zepto rivals larger players like Zomato-owned Blinkit, Swiggy Instamart, and Tata’s BigBasket (BB Now), all of which are also vying to be top players in the space. Gurugram-based Blinkit is currently the largest quick commerce company with a market share of about 40-45 percent, as per several estimates.

Zepto is also the only pure-play quick commerce company among the lot so it needs to set itself apart from the rest, for which it needs to grow faster with a deep pool of capital. While Zomato and Swiggy have a thriving food delivery business, BigBasket is owned by the Tata group.

“Nexus and its LP (limited partner) StepStone will together lead the round by putting in a majority of the total $650 million,” one of the persons cited above.

Competition in the space is limited to just two to three companies and Nexus has chosen to bet big on Zepto, a second person explained when asked about the rationale behind the VC firm’s big-ticket investment.

This will be among Nexus’ largest investments ever. That is understandable as Zepto has also managed to grow its valuation during each fundraise.

Zepto’s valuation was around $250 million in 2021 which increased to $900 million in 2022 and then shot up to $1.4 billion in 2023. In the ongoing round, the company is valued at $3.5 billion, more than double of $1.4 billion that it commanded less than a year ago, as investors turn bullish on quick commerce.

While quick commerce has struggled globally, it has emerged as a $5-billion annual sales channel in India and will only grow further, according to Goldman Sachs.

Zepto, which is among the top three players, does 5.5 lakh orders a day through a network of 340 dark stores across seven cities in India, the company management had told Goldman Sachs in April. The firm's annualized gross order value (GOV) stood at $1.2 billion and has a take rate of 23 percent, analysts at the brokerage said.

For context, Blinkit - the number one quick commerce player -delivered over 7 lakh orders each day and had 526 dark stores during the January-March period, the latest filings showed.  Blinkit had a take rate of around 19 percent.

The take rate is what the company earns from brands on each sale.

Mumbai-based Zepto also aims to turn EBITDA breakeven by September 2024 as the business matures and its cash burn reduces to a single-digit million (in dollars).

Zepto, StepStone Group, Nexus Venture Partners and Glade Brook Capital, Avenir Growth, Lightspeed Venture Partners, DST Global, and Avra did not reply to Moneycontrol's queries.

Barring Avenir Growth, an investor in companies like Spinny, Zetwerk, Flutterwave, and Savage X Fenty, all of Zepto's new investors have had exposure to quick commerce in the past.

While Lightspeed has backed Zapp, a UK-based instant grocery delivery startup, DST Global is an investor in Swiggy, Zepto's close competitor. Avra is set up by Anu Hariharan who ran Y Combinator, an early backer of Zepto.