Last week, Swiggy invested in Fingerlix and was in the lead to acquire UberEats, just a few weeks after acquiring Kinto.ai

Swiggy's growth has been breathtaking. It was only 4 years ago when Swiggy raised its first seed round of $2MM, at a time when TinyOwl had raised $23MM, FoodPanda was acquiring startups, and Zomato was worth $1Bn. Today, TinyOwl is dead, FoodPanda is acquired, and Zomato is worth $2Bn.

Swiggy, though, is worth $3.3Bn. 

In its first year, Swiggy was delivering 1000 orders a day, largely focused on Bengaluru. A key hallmark of Swiggy's strategy has been its focus on establishing product-market fit in a particular geography before scaling. In the words of its founder Sriharsha Majety, "we will serve better experiences to win".

That would set the tone of Swiggy's voracious appetite for growth, where it would exhibit three distinct kinds of hunger.

Swiggy's first kind of hunger (organical vertical) would be satisfied through the scaling of its food delivery business. Swiggy grew 2x every few months, and even faster post its seed round. It would follow up within 6 months with a $16.5MMround as it began to onboard its own delivery personnel onto the platform. This would be a game-changing move that would allow Swiggy to tightly manage customer experience, as it scaled to 70K orders/month in mid-2015. 

Post funding, the company scaled "only" to 7 cities, much lower than TinyOwl's 18 cities. "Monopolize a market before scaling" was the maxim that PeterThiel propagated, and Swiggy had been practising from day one. While Swiggy continued to scale, TinyOwl would begin to show signs of struggling. Most companies die of indigestion, and not of starvation, and it would play out most clearly (ironically) in the food delivery space. 

Swiggy would go onto raise $35MM in Jan 2016, while TinyOwl and FoodPanda would die of indigestion. 

By mid-2016, the company had scaled to 1.2MM orders a month, from 70K in mid-2015, a phenomenal 15x growth in 1 year. The company, during this round, claimed that it was operationally profitable in its first two cities of Bangalore and Hyderabad. Operational profitability really brings up the question of unit economics, or the profit Swiggy makes on every unit (i.e. order).

Before we dig into unit economics, we need to understand what Swiggy really is.

Swiggy is essentially a matchmaking platform acquiring a customer to discover a restaurant, where it provides a delivery service to "match" the customer with the restaurant. Swiggy charges customers for the food and takes a commission from the restaurant for the delivery. It would also give a delivery fee to its executives.

Given the customer would pay the same amount for the food if purchased at the restaurant, Swiggy basically started by providin the delivery for "free" to the customer, while charging the restaurant. This is a classic matchmaker cross-subsidization strategy, where the customer is subsidized by the vendor. 

Swiggy's unit economics would thus depend on average order value, commission, the delivery fee and its customer acquisition cost. This is something we should keep in mind, as the company scaled.

In mid-2017, the company had scaled 2x to 2.7MM orders per month, or a $10MM GMV per month. Swiggy would end up raising $80MM, at a $400MM valuation, as its appetite for scale grew. Notwithstanding a minor "scandal" on investor disclosure, the company continued its rapid growth and raised $100MM in early 2018. It would follow with a $210MM raise in mid-2018, to become India's fastestunicorn. 

2018 would end with a giant $1Bn fund-raise that would put Swiggy top of the stack in terms of valuation in the food delivery space. The company's first kind of hunger had gotten it pretty far. 

It is now necessary to understand the unit-economics of the "core" food delivery business, to understand the necessity to scale.  With an average order value of 380 INR ($5) the company makes a commission of 25% ($1.5/90 INR). Adding an additional delivery fee of 20 INR, the company makes 110 INR. Paying delivery executives ~90 INR/delivery, it makes 20 INR per delivery of margin. For a customer acquired for 200 INR, it would 10 deliveries (200/20) to recover customer acquisition cost (i.e. payback period). 

This meant that Swiggy would need to keep visiting customers regularly, and this would be something I love to call Swiggy's battle for your doorstep.  

Swiggy's second kind of hunger (organic horizontal) would now come to the fore - delivering more than just restaurant food through its delivery service. Now that Swiggy visited your doorstep, it could deliver you more than just food, or even curate it. Swiggy's Stores, as I had postulated, would do exactly this by delivering everyday groceries at your doorstep. 

Utilizing its delivery network to sell low order value, high-frequency items apart from food, would unlock even more value from its customers. With a massive network, across multiple cities, the company launched the food curating Swiggy Pop, which I analyzed made a lot of sense from a financial perspective. 

The final, all-consuming hunger (inorganic), would be Swiggy's growth through acquisitions.

It would acquire SuprDaily to bolster its second kind of hunger, as it looked to get into groceries. Its acquisition of Kint.io would bolster its first kind of hunger, by allowing it to improve customer experience. The most giant meal, though, is likely to be Swiggy's acquisition of Uber Eats, which I speculate is a fire sale by Uber. 

Swiggy's appetite has not resulted in indigestion yet, and it doesn't look like it will be stopped. With ~20MM orders a month, the company is likely doing $100MM of GMV a month, or $1.2Bn a year. The ~25% take rate would put Swiggy's revenue at $300MM. Assuming at least 10% of additional revenue from its other streams, the company's revenue is $330MM. At a $3.3Bn valuation, it is valued at 10x revenue.

For the massive market that Swiggy is looking at, its increasing appetite is likely to be justified.