The two startups–both backed by venture funds Sequoia Capital and Nexus Venture Partners–aim to create an integrated hyper-local delivery service at a time when fresh funding is drying up for consumer internet businesses that rely mostly on discounting to win customers.
The talks under way for a few months now, are still at a preliminary stage the sources said.
“The vision of the combined entity is still being discussed,” said one investor aware of the negotiations. If the deal does goes through, the combined entity may look at raising fresh funding of about $40 million, the person said.
At present, both companies have cash to sustain operations for at least 10 months.
Mohit Kumar the chief executive officer of Roadrunnr, Harsh Vardhan Mandad, the chief executive officer of Tiny Owl and Sequoia Capital did not respond to email queries from ET on the developments.
If talks prove successful, the combined entity could explore several options including launching food ordering and delivery services and may also expand to categories beyond food like the launch of bike taxis, the sources said.
A successful deal will also mark the first major consolidation in the internet space over the last two years– after the Flipkart-Myntra acquisition– in which common shareholders played a part.
According to a report by Morgan Stanley, online penetration in food and groceries is expected to increase from 3-5% in 2014 to 25-30% in 2020.
The talks of a merger between the two companies come at a time when unit economics rather than fastest growth has become the main criteria among investors. In the first two months of 2016, series B transactions fell to 7 deals worth $77 million as compared to 25 deals worth $291 million during the same period in 2015, according to data from research platform VCCEdge.
Bengaluru-based Roadrunnr was founded in February by former Flipkart employees Kumar and Arpit Dave, focusing on business-to-business deliveries. It makes use of an on-demand model to partner with delivery boys and manage lean and peak demand, and charges businesses a flat rate per delivery.
TinyOwl was founded in 2014 by IIT-Bombay graduates Mandad, Gaurav Choudhary, Saurabh Goyal, Shikhar Paliwal and Tanuj Khandelwal. In October, Tiny Owl raised Rs 50 crore from existing investors Sequoia Capital, Nexus Venture Partners and Matrix Partners.
Source: The Economic Times