Indian Economy News

Zomato in talks to raise $100 million after mega US deal

New Delhi: A day after it acquired Seattle-based Urbanspoon for $52 million in cash, restaurant search service Zomato is in talks to raise about $100 million in fresh funding, a company executive said.

Zomato’s acquisition of Urbanspoon was announced in a disclosure filed with the Bombay Stock Exchange by Info Edge, which owns a majority stake in the company. The move is significant for Zomato: it marks its entry into the US market and is a rare instance of an Indian tech start-up buying an American business. Zomato is now in 22 countries and over 500 cities around the globe.

Zomato was started in a living room in New Delhi by Deepinder Goyal and Pankaj Chaddah, both IIT Delhi graduates who quit their jobs as consultants at Bain & Co. The site was originally called “Foodiebay”, but was rebranded as Zomato, both to avoid potential conflict with Ebay and to reinforce the ambition: to be more than just a restaurant-listing service.

In 2010, in a blog post, Goyal said: “As a product, we want to evolve into a recommendation engine that suggests you the best places to order home delivery from or to dine-out at. Overall, the question we want to answer for you in the longer term is — “Where should I go today”?

In 2010, Info Edge India Ltd, which now owns a majority stake in the company at 50.1%, raised $1 million in seed funding. So far, the company has raised $113.8 million. It is currently valued at $660 million after closing its latest round of funding in November 2014 with $60 million from Vy Capital. It used a majority of this investment to snap up Urbanspoon.

Zomato’s biggest rival in the US is Yelp, which was started in San Francisco in 2004 and saw around 139 million unique visitors in the third quarter of 2014 from 29 countries. In a blog post announcing the Urbanspoon acquisition, Goyal estimates that the two companies together would see over 80 million visitors and also strengthen Zomato’s position in the UK, Canada, New Zealand and Ireland — markets besides the US that Urbanspoon already has a presence in. The move will also grow its listings to 1 million from the current 300,000.

Unlike Yelp, which relies on user-generated restaurant reviews, Zomato takes what TechCrunch calls a “feet on the street” approach. It scans menus using optical character recognition technology; and every three months, it has real people recheck resturant information to make sure it’s accurate and up-to-date. It’s a model that’s tough to scale, but goes a long way in differentiating the service from that of competitors.

Zomato uses native advertising on its website to make money. In November 2014, it started displaying ads in its mobile apps available on Android, iOS, Windows Phone and BlackBerry. Users see ads for restaurants around their location when they search for something. This is crucial — more than 50% of Zomatos’ global users use the service on cellphones, according to MediaNama. Zomato also charges restaurant owners who want to offer promotions through their listings both on the website and in their apps.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.