Unicorn broth: The valuation spice in food-tech

India's food-tech broth is heating up, once again. The country now has two food-tech companies in the unicorn club. Zomato already had a valuation of over a billion dollars. Recently, online food-delivery start-up Swiggy joined in. In its latest funding round, the company raised $210 million at a reported valuation of $1.3 billion. Overall, the company has, thus far, raised around $466 million from investors such as Naspers, DST Global, and Bessemer Venture Partners among others.

What explains such lofty valuation for these two companies?

One, in most segments of Internet commerce, the market is now polarized between the top two companies, be it e-tailing (Flipkart and Amazon), cab aggregation (Ola and Uber) or fin-tech. The top two players in all segments are getting a premium for their positioning. There is also a significant gap in market share between the No. 2 and the No. 3 or 4 players in any segment. This is true of food-tech as well - according to analyst with Forrester Satish Meena, 75-80 per cent of the aggregation market in food-tech is split between Swiggy and Zomato. Swiggy executes about 11 million transactions a month and operates in 15 cities, sources said.

A second reason for such valuations is the state of the market. Food delivery is demonstrating scale as a business. According to RedSeer Consulting, the online food delivery market in India totalled $0.3 billion in 2016. A CAGR of 90 per cent is expected to take the segment to $4 billion by 2020.

"There are also not many good opportunities left if you want to invest in food-tech," says Meena.  "Most companies funded in 2014/15 failed to scale-up. Only a few survived."

Most of the big ticket funding from now on, says Meena, will now come from either China or Japan. "Now they see India reaching some kind of scale. There is incremental funding coming from China. More Chinese companies are trying to invest in India and South East Asia because they see an opportunity to expand their business," he adds.