Online food ventures have been grabbing the headlines in the startup ecosystem and among private equity and venture capital firms. Seventeen deals were concluded this year, up from five a year ago, and the investment flow has increased by 93 per cent to $130.3 million.
These start-ups help in ordering food, provide dining reservations and rate restaurants.
According to Chennai-based Venture Intelligence, food technology start-ups attracted $130.3 million investments between January and September 2015. The five deals in 2014 brought in $67.7 million and six deals in 2013 $42.06 million.
This year's top three deals are $16.25 million pumped in by Sequoia Capital, Nexus Venture Partners and Matrix Partners into TinyOwl, $16.5 million by SAIF, Norwest, Accel and DST Global in Swiggy and $60 million by Temasek and Vy Capital in Zomato.
Experts said food start-ups would continue to thrive for five years and the ones to watch out for were Zomato, Quinto, ChefHost, MeDine, Momoe, DineOut, BigBasket, HalfTeaSpoon, Eatlo and Fresh Menu.
"There is huge potential and more start-ups will grow substantially over the next five years with slight changes in the business model. They may be acquired early," said Vikram Gupta, founder and managing partner of IvyCap Ventures.
As Internet penetration rises there will be more opportunity in smaller cites. However, logistics will be a challenge for these companies.
Online food delivery in India grew 40 per cent to Rs 350 crore in 2015 and accounted for 17 per cent of the online services market, according to the Internet and Mobile Association of India (IAMAI). Restaurant discovery portal Zomato launched its ordering service in April.
"There will be significant value creation in online food ordering, and a mobile-only approach is the way to win. TinyOwl is a part of our broader portfolio of investments in local services and this will be an important area," said Rishi Navani, co-founder and managing director, Matrix India.
The segment is crowded because food appeals to a lot of people, and there is not enough differentiation, according to Sarath Naru, managing partner of Ventureast. "We are staying away. One of the things we look at it is a business should have backward integration," he said.
Valuation in the segment is another challenge, according to investors. "They are seeking valuation of three years from now. But competition is also increasing. People are realising if you are looking at 20 companies, you do not necessarily have to work with the one seeking the biggest valuation," said a venture capital investor.