Mumbai: Sequoia Capital-backed milk and grocery delivery startup DailyNinja, is in early talks to raise $18-20 million ( 128-140 crore) in fresh funding, as it seeks to become the leader in a hotly contested space that has seen a surge in investor interest in the last one year, said two people aware of the development.

Founded by Anurag Gupta and Sagar Yarnalkar in 2015, DailyNinja currently runs a subscription model, offering a variety of grocery items, including milk, bread and eggs, vegetables and fruits in Bengaluru, Chennai, Hyderabad, Mumbai and Pune.

It will use the funds to be raised to expand to new cities, including Delhi-NCR and scale up its business, said the first person cited above, speaking on the condition of anonymity. Dailyninja will look to expand its user base from 60,000 currently to 200,000 over the next two years, the person said.

Its existing investors- Sequoia, Matrix Partners and Saama Capital are likely to participate in the round, said the person cited above.

DailyNinja raised an undisclosed sum in a round led by Matrix in September last year, prior to which it raised $3 million from Saama and Sequoia in June 2018.

From early to late stage, hyperlocal delivery firms have been an investor favourite recently, driven by the large and fragmented market for groceries, which is dominated by mom-and-pop stores and local grocers in India.

More specifically, a slew of milk delivery startups, including Milkbasket, Country Delight and Doodhwala, in addition to other smaller players, have managed to raise funds from venture capitalists.

While Country Delight raised $10 milion led by Matrix earlier this month, Milkbasket raised $7 million last December, led by Mayfield Advisors. Doodhwala raised $2.2 million last February from impact investor Omnivore Partners.

The space has also seen traction because these companies bring in specific service expertise, as compared to larger players who focus on multiple offerings and may lose focus of quality in niche areas, said Sanjay Khan Nagra, principal associate at law firm Khaitan & Co.

As these startups scale and gain market share, consolidation is also expected, with a couple of firms- the best funded and operationally profitable ones emerging as winners, said the second of the people cited above. DailyNinja itself has made two acquisitions so far-it bought hyperlocal delivery firms WakeupBasket in October last year, and 4amShop in August.

“Consolidation can be expected here as larger players will look for smaller players to enhance their service offerings. In some cases, investors may want to consolidate their portfolio companies as well," Nagra said.

Matrix Partners declined to comment, while Sequoia and Saama did not respond to mails. DailyNinja’s Yarnalkar denied the development in an emailed response.