Food delivery biz feels the pinch as funding dries up

Besides TinyOwl, others Indian startups in this category such as Peppertap, Groffers, FoodPanda, Zomato, BigBasket, among others have cut down or closed many of their operations.

Food delivery startups face the crunch with funding from investors drying up. Photo: Linkedin

TinyOwl recently announced its decision to shut operations in all cities except Mumbai. Notifications were sent by the company to its users stating that the service will be discontinued after May 22.

The plight of the food and grocery delivery startups have not been too well since mid-2015. Besides TinyOwl, others Indian startups in this category such as Peppertap, Groffers, FoodPanda, Zomato, BigBasket, among others have cut down or closed many of their operations.

It is not only in India, but globally too funding towards startups in the food and grocery delivery category has reduced to almost half in 2015.

Funding had peaked in 2015 when investment in the category grew to $5.4 billion from $1.9 billion in 2014, according to report by CB Insights. The funding in 2016 from investors has now dried up to $733 million.

Funding deals for the meal and grocery category have reduced to merely 35 deals from 259 deals in 2015. Deals in this category had doubled in 2015 from the previous year.

However, the average deal size currently in 2016 remains close to the size observed in 2015 at $23.5 million, despite the drop in overall funding, said the report.

Indian grocery delivery startup BigBasket has raised the highest funding in this year so far at $150 million. It is followed by US meal delivery site DoorDash which received $70 million from Chinese company Benlai Life.

Funding for this category during Q1 2016 has been the lowest since Q4 2016. The funding had reduced to $609 million from 23 deals in Q1 2016 from $1.4 billion from 60 deals in the same quarter last year.

The reason for this is a large drop in funding from seed or angel investors towards the category. While seed and angel investors contributed 51% of the funding in 2015, it has now reduced to 14% in 2016.

While US-based food delivery startups attracted the most deals at 45% since 2012, Indian startups came in next at 18%. However, in terms of dollar share China fared much better with 41% funding, followed by Germany 23%, US 20% and India 8%.

BigBasket and Foodpanda are the two Indian startups amongst the most well funded food and grocery delivery companies globally, according to the CB Insight report. FoodPanda has received $318 million in funding, while BigBasket has received $246 million.