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Home delivery service Grofers in talks to raise up to $50 million

The start-up is looking to expand its service nationally

Mumbai: Delhi-based hyper-local delivery start-up Grofers, run by Locodel Solutions Pvt. Ltd, is in talks with investors, including Goldman Sachs, to raise up to $50 million (around 310 crore), as the start-up looks to expand its service nationally, according to two people familiar with the development.

A hyper-local delivery service is one which provides home deliveries from local vendors such as kirana stores.

In February, Grofers raised $10 million jointly from venture capital firm Sequoia Capital and American investment firm Tiger Global Management Llc.

Prior to that, in October 2014, the company raised 3 crore from Sequoia and Deepinder Goyal, founder and chief executive of Zomato Media Pvt. Ltd, according to a Registrar of Companies filing.

The company’s valuation stood at 204.8 crore after its fund raising in February, shows the filing.

“Grofers is in talks to raise funds and has received a term sheet from Goldman Sachs, which is interested in investing up to $50 million in the firm," said the first person cited above, a banker, seeking anonymity as he is not authorized to speak to the media.

Logistics firms backing retailers, including e-commerce companies, and providing so-called last-mile connectivity to consumers, are attracting the interest of investors seeking to indirectly tap the country’s organized retail market. Foreign investment in organized retailers is still subject to restrictions, although the then government in 2012 allowed overseas operators to take a stake of up to 51% in local supermarkets.

A second person explained that the firm is looking for another round of funding as it plans to expand services to other metros.

“We can’t comment on any fund raise news right now," said Grofers co-founder Albinder Dhindsa in an emailed response. A spokesperson for Goldman Sachs said that the firm doesn’t comment on market speculation.

“Local delivery is a very niche space right now. Most start-ups in the logistics space are focusing on e-commerce logistics support, while Grofers is tapping local vendors for delivery of daily supplies such as groceries, medicines etc.," said the second person cited above.

The person added that since there is strong interest from investors, the firm felt it was the right time to raise a large round.

“So far the company hasn’t spent much on marketing but going ahead, that will be one of the major expenses it will have to bear as it expands geographically," this person added.

Globally, hyper-local delivery has emerged as an attractive sector for investors.

Beequick, a Beijing-based hyper-local delivery company that was founded in 2014, closed a second round of funding worth $20 million in March. Hillhouse Capital Group led the round while Sequoia Capital participated in it.

Sequoia has also invested in the same space in the US. DoorDash, a California-based company, closed a second round of funding, raising $40 million from Sequoia, Khosla Ventures and others. US-based Instacart, a grocery and home essentials delivery company, also raised a third round of $220 million in December.

Interest in the segment has picked up in India as well.

In March this year, Amazon India launched its Kirana Now solution in parts of Bengaluru. It services customers through a network of kirana stores in their network.

By expanding its presence, Grofers is hoping to maintain its first mover advantage, said the second person.

In an interview on 2 April, Grofers co-founder Dhindsa said that the company lists vendors on its platform and then carries out deliveries across three categories.

The first is vendor-customer deliveries, where the customer places an order through the mobile app and Grofers delivers within 90 minutes.

It also makes bulk wholesale deliveries for vendors and delivers documents for corporates.

The firm charges listed vendors a certain commission on the total value of the order, even though customers are not charged anything.

Grofers, which started operations last year, currently has 30 delivery centres in Delhi and recently launched its operations in Bengaluru.

Each delivery centre has a network of not more than 10 delivery men and does about 100 deliveries a day.

The company is looking to expand to cities such as Chennai, Hyderabad and Pune by the end of this year, Dhindsa said in the early April interview.

“Spending on logistics is quite high compared with developed countries, and it is the inefficiency in the system that offers a great scope for start-ups. Companies that offer better solutions at a lower cost would certainly have an edge over others in the sector and start-ups have the potential to do so, as they can adopt to newer technologies and solutions to address the need," said Anil Joshi, managing partner, Unicorn Venture Partners, a venture capital fund, adding that e-commerce is the main driver of growth in the logistics sector.

Joshi added that start-ups would face several challenges in creating a national network, such as poor infrastructure and trade regulations such as an absence of uniform tax laws across states. That could change if the government passes the Goods and Services Tax legislation.

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