Zoomcar, which was started by American duo Greg Moran and David Back in 2013 in Bengaluru, is now backed by Mahindra and Mahindra Ltd (M&M). Drivezy, launched as JustRide in August 2015, assumed its current brand in July 2017.
Talks are still exploratory and may not culminate in a deal unless lenders to both companies approve the terms of the deal, said two of the three people cited above, all of whom spoke on the condition of anonymity.
Top investors in both startups are likely to hold stakes in the merged entity, they added.
Financial details of the transaction could not be ascertained. However, one of the three people cited above said, “Zoomcar might look at a share-swap deal, which will allow the company to pay existing shareholders using equity shares, rather than paying the sum entirely in cash".
Questions emailed to Zoomcar on Friday remained unanswered till press time.
A Drivezy spokesperson said, “We refrain from commenting on this information".
Mint reported in April that M&M was looking to invest as much as $400 million in Zoomcar. Drivezy is also looking to raise around $400 million and an additional $100 million in debt funding to fuel its expansion across India and a planned US launch, according to a TechCrunch report in April.
Zoomcar is seeking a valuation of $350-500 million while Drivezy is seeking a valuation of $400 million, two people close the development who were briefed on the details of the deal said on condition of anonymity.
Both Zoomcar and Drivezy have raised debt funding in the past and have fixed repayment schedules.
So, any merger deal will need to be vetted by all lenders.
“If both companies are going to merge, the new ownership structure should be comfortable to each and every debt lender... All the assets and liabilities will be put on the table. And they (lenders) will approve any merger only when there is enough money to cover debt and its repayments," said the third person cited above.
Zoomcar has raised more than $100 million in debt and equity funding till date.
It currently operates over 7,000 four-wheelers and 300 electric vehicles on its platform. Users can locate Zoomcar vehicles within their vicinity and pick them up.
Drivezy had raised $5 million via an initial coin offering (ICO) in 2018. It later turned to debt funding to grow its fleet of vehicles and set up a special purpose entity to raise and manage debt money.
It has so far raised around $40 million from investors such as Das Capital, Y Combinator and White Unicorn Ventures. It claims to have more than 15,000 bikes and around 3,000 cars on its self-drive rental platform.
The development comes at a time when urban mobility startups in India are shifting focus to last-mile travel, over self-drive rental products to grow their user base.
Last-mile mobility startups are also currently a lucrative investment proposition for several debt and strategic investors in the country when compared to self-drive platforms, since last-mile users exhibit high retention rates, and the market is largely unexplored in India.