December 2017 was an interesting month. Zomato turned into a unicorn, with Alibaba’s $200 million finally landing. Foodpanda was bought by Ola in December for about $32 million. Ola’s CEO Bhavish Aggarwal pledged to invest $200 million into one of the oldest restaurant aggregators. Swiggy acqui-hired a cloud kitchen, 48East, strengthening its supply. Hot, up-and-coming cloud kitchen startup, Freshmenu, opened a restaurant at Bengaluru airport and flexed its muscles. It’s almost like all of the action in food tech was sandwiched in the last 15 days of 2017.
Not a lot happened since 2015 when the food tech bubble last popped.
Swiggy showed a steady climb; it raised around $80 million and was finally valued at $500 million, making it the first food tech company after Zomato in that space. And that’s probably about it. Look around and the sector just crossed funding worth $1 billion. According to Tracxn, in 2016, just $127 million was raised in this sector after the heady days of $266 million in 2015.
Now, look at 2017, the sector raised $117.4 million. If you remove Zomato’s $200 million, the year was as flat as 2016. But that one month changed everything.
For people who have been following the food tech business, this is the apt moment for deja vu. In 2015, there was a variety of companies that suddenly managed to raise cash. In fact, in 2015 alone, according to Tracxn, 540 companies were formed in food tech. That’s a lot of action. And 2018 looks like the start of another active period.
“I would say 2018 will be the year of food tech again. But unlike last time, money will be given to, say, not 100 companies but a select few,” says Alok Jain, founder and CEO, Yumist, a cloud kitchen company that shut down in the middle of 2017.
Jain isn’t wrong. Swiggy just announced that it had raised another round of funding, and this time, from Naspers and Tencent-backed Meituan Dianping. It symbolises a change in perspective. Over the last two years, companies raised cash when they had about 12-18 months of runway left. In Swiggy’s case, it has managed to raise money without the immediate need for cash. The penny, as they say, has dropped.
The big question to ask here: what’s fueling this action? Things have moved on from the last time the sector was hot. This time, the ecosystem has matured. With pressure on unit economics, companies have become leaner and have started to control their burn. “With the exception of UberEats, no one is pushing the boat out with discounts,” says a senior executive at a Delhi-based food tech company.