“I think hyperlocal just has a higher gestation period. It takes longer for those businesses to get to profitability.”
Investor interest in the online grocery space is heating up yet again after a period of slowdown in 2016 and 2017. While Grofers on Friday announced fund raising of USD 62 million in a round led by Softbank, rival Big Basket raised USD 300 million from Alibaba and other investors. In an interaction with Moneycontrol, Grofers co-founder and chief executive officer Albinder Dhnindsa talks about why the company agreed to a downround and future fund raising plans. Edited excerpts:
Grofers was in talks to raise USD 100-130 million, however this round saw just USD 62 million fund raised. Is there another tranche waiting to happen?
There’s probably going to be something else. The thing is that we wanted to get a better valuation elsewhere so we will see how it plays out. But this is it for now.
Will it be part of the same Series E or there will be a next round for it?
Both the options are open for now. We will wait for three to four weeks to find out more and talk about it.
Will that be another USD 60-80 million?
It will be a little pre-mature to talk about it. Fundamentally what we are trying is that we raise another round which is slightly at a higher valuation. When we started this discussion we have been in talks for more but that would have taken more time. So we decided to go ahead with this for now and then raise more money at a higher valuation.
It will take a few months to fructify. It will basically be a strategic source of capital for us. The plan will be the same to keep the cities profitable and keep growing from there.
This round brings down Grofers valuation to USD 300 million from USD 400 million during the previous round in 2015. What sort of valuation are you looking at for the next fund raise?
That will depend on the negotiations but we are hopeful that we will be able to increase the valuation because our business is doing really well.
Will that be a strategic round?
Yes, most likely.
What led you agree to a downround?
If I talk about the fundamentals of the business then we would be valued a lot more. But in a lot of cases, these are actually reactions to 2015 when a lot of things used to be inflated. I knew at that time that we were sitting on an inflated valuation (Grofers raised USD 120 million for about USD 400 million valuation in 2015). So that is why we shouldn’t feel that this is a downround and so it is a bad thing. I am not too worried about the downround, it doesn’t make much difference.
How is online grocery as a market different from two years ago when a lot of hyperlocal delivery startups had to shut down their businesses? What went wrong then and why 2018 will be different?
Hyperlocal was a more expensive preposition because you were delivering a lot faster. But the biggest problem we used to face was that we wouldn’t also get good supply. So right now we plan to focus on the core cities. Overall, I think hyperlocal just has a higher gestation period. It takes longer for those businesses to get to profitability. Working out the unit economics was also a factor.
Your rival Big Basket too recently raised USD 300 million. Where do you see this competition going? How do you plan to differentiate yourself from them in the market?
We are a lot more capital efficient that Big Basket. They spend a lot more than us. We spend less than half of what they spend every month.
What is Grofers’ monthly burn rate?
We cannot divulge the numbers right now. But you can clearly see that we don’t spend that much on marketing. We don’t have so many TV advertisements. Because we are getting a lot of growth from a pure product side which is what the focus is on. Our expenses are also lower.
Last year we gained a lot of market share and that too at a time when Big Basket and Amazon were spending lots of money. Flipkart also started its grocery business. We still keep on growing, so in this month we will grow another 20 percent in sale. It really doesn’t matter to us what the others are doing.
Grofers is currently in 13 cities. No expansion in number of cities?
No plans at least in the next 18 months.
How difficult has the market become to raise funds?Our’s was an internal round. So we basically went and asked SoftBank and they agreed. And then we were doing other conversations. So there is definitely fewer investors in the market but it wasn’t very difficult for us. However just because late stage number of investors in the market are significantly less now so most of the businesses who plan to raise funding at are finding it more difficult to raise capital.
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