Now, this food delivery unicorn is circling Dunzo

If the deal goes through, it could help Swiggy stake a greater claim in the groceries and hyperlocal delivery space, in which it currently has offerings including Swiggy Instamart and Genie in some markets. Rival Zomato, which recently went public with a valuation of about $13 billion, has expressed interest in the space both through an in-house grocery delivery offering as well as an investment in Grofers.

“Swiggy is in preliminary talks, but there is no definitive agreement signed as yet," one of the two people said on condition of anonymity.

The company is raising a fairly large round, which is expected to take its valuation to $10-12 billion, the second person added, also requesting anonymity.

In a written response, Dunzo founder Kabeer Biswas said that his company does not respond to hearsay and that his focus continues to be on the fast growth of the business. An email sent to Swiggy went unanswered at the time of going to press.

On 9 June, Mint reported that Tata Digital, a unit of Tata Sons Ltd, had initiated talks to buy close to a controlling stake in Dunzo. But the deal stalled owing to differences in valuation, the first person cited above said.

On 20 July, Swiggy raised $1.25 billion in a funding round led by Softbank Vision Fund 2 and Prosus. It nearly matched the funds raised by rival Zomato as part of the ₹9,375 crore initial public offering. The fundraising valued Swiggy at $5.5 billion, an increase of more than 50% from the $3.6 billion it was valued in April last year. The round also saw participation from existing investors Accel Partners and Wellington Management. New investors joining the round included Qatar Investment Authority, Falcon Edge Capital, Amansa Capital, Goldman Sachs, Think Investments and Carmignac.

Investors’ confidence in Swiggy comes amid rival Zomato concluding a successful IPO. Moreover, Swiggy’s newer bets, including pick-up-and-drop service, Swiggy Genie, e-grocery service, Instamart and subscription-based grocery delivery service, SuprDaily, have bolstered investors’ confidence in the company’s strategy to diversify its revenues.

As Swiggy competes with Dunzo across these categories, it will look to gain market leadership in the hyperlocal space. During its last fundraise, Swiggy confirmed that its focus will continue to grow beyond the core food delivery category. “The scope of food delivery in India is massive, and over the next few years, we will continue to invest aggressively in growing this category. Our biggest investments will be in our non-food businesses that have witnessed tremendous consumer love and growth in a short span, especially in the past 15 months of the pandemic," Swiggy CEO Sriharsha Majety had told reporters after the last fundraising.

An acquisition would also help Swiggy seek a higher valuation even as it considers a private upround to match competitor Zomato current market valuation, the second person said.

Dunzo offers hyperlocal delivery services. In early June, Dunzo said it processes more than $200 million in annualized gross merchandise value (GMV). Its most recent fundraising was in January when it raised $40 million from Lightbox, Evolvence, Hana Financial Investment, LGT Lightstone Aspada and Alteria Capital. Till January, the hyper-local startup founded in 2015 had raised $121 million in capital. Blume Ventures, Kalpavriksh Fund, and Patni Wealth Advisors are also investors in Dunzo.

Dunzo’s loss widened to ₹343 crore in 2019-20 from ₹169 crore in the previous year.

Meanwhile, Zomato, too, is readying to battle Swiggy as it looks to bring back grocery delivery service ‘Zomato Market’.