Exclusive: The Inside Story Of How Delivery Hero Backed TastyKhana Was Acquired By FoodPanda

Pune based TastyKhana was acquired by Foodpanda recently, we look at the inside story of the acquisition and the road ahead for TastyKhana

Shachin Bharadwaj TastyKhana

“Sometimes in life it is good to be foolish” - Dr. Manmohan Singh, as quoted in Sanjay Baru’s book The Accidental Prime Minister.

Shachin Bharadwaj might not have been aware of this regular thought of our ex-Prime Minister when he decided to pursue his dream of building a quick way of ordering food online. Many considered him a fool when he decided to leave his IT job to chase his startup dream. “When you are young you tend to be foolish and headstrong with your beliefs. You work more to prove people they are wrong, and hence all the advice about this not being a good idea only made the resolve stronger,” shared the Founder and CEO of TastyKhanna - a seven-year-old online food ordering startup based in Pune.

With no one supporting the idea, Sheldon D’Souza, an engineering classmate for 4 years and the perfect techie to build the system joined him as the co-founder. Launched in 2007, TastyKhana has been one of the torch bearers of the startup ecosystem in Pune. It now claims to have partnered with more than 9,000 restaurants from cities across India.

When serious doubts were cast on the business model of TastyKhana, critics went mum after Berlin based online food ordering company Delivery Hero backed it in early 2012. Later in 2013 Delivery Hero invested another $5 million. However the big news came out right after TastyKhana celebrated its seventh year - the startup got acquired by leading global online food ordering service, Foodpanda for an undisclosed amount.

“If someone had come five-six months ago and asked if we were thinking of such an exit, I would have said no. But now on hindsight, I think that these things happen like this. They just come up, certain things fall in place and since every one was happy we moved ahead,” shared Shachin in a telecon with Lighthouse Insights.

At the same time, the CEO was quite candid to accept that an exit was down the line with external money coming into play. “There was no time line from our investor (Delivery Hero) but an exit was sure. And I would be lying if we were not looking at a monitory value whenever it happened.”

Early talks of acquisition

Taking me through the acquisition journey, Shachin informed that it was late July - early August when Niklas Östberg, Co-Founder and Global CEO at Delivery Hero indicated that Foodpanda is thinking of acquiring TastyKhana. Rather than jumping around Shachin was shocked since he wasn’t ready to sell his seven-year-old baby and some part had to do with the Indian mentality. “It was my first reaction which was not rational but in India you generally talk about selling when it is probably not working. So you will always flaunt that I got acquired by someone rather than telling I sold my business.”

The talks at that point weren’t really serious and got parked for that moment, only to be picked up again over a lengthy call on the weekend. Over the call Niklas and Shachin spoke about how Delivery Hero wants to go ahead and the structure it wants to bring out to its global food delivery business. The next three-four days went by thinking about the deal, about the future road map, how the team would work, among other things. “That’s when we started talking to Foodpanda on their India growth, future plans and why they want to acquire us. All things came into picture and the talks became more serious.”

Prior to this Shachin wrote a long mail to Niklas stating on doing what ever is good for Foodpanda and the shareholders. Both scenarios were discussed: If the deal failed then what will be Delivery Hero’s plan for TastyKhana, and if it went through then what would be the future for TastyKhana without Delivery Hero. “That is when we had a structured discussion with all things on the table. For me it was also a great learning in the last 3-4 months.”

Talking about one of the key reasons to say yes to the deal was the business sense that Foodpanda made for TastyKhana. “For Foodpanda India is one of the biggest market and for Delivery Hero we were not that a big business in comparison to the markets like Sweden, Korea where the orders are more than 2/3 million a month. We were not the focus market for Delivery Hero which operates more on high growth market so I wanted to be the darling company for an investor group.

Processing 3 million orders per month in India will take some time and with Foodpanda it wasn’t the case since it was pretty new to the Indian market. The entire scope for growth, appreciation was with Foodpanda which made business sense too.”

From a money perspective Delivery Hero never pressurized TastyKhana for an exit. Considering the crazy investments Delivery Hero has been making in markets such as Korea, Germany, Latin America, among others, Shachin’s claims do weigh in. “The don’ts were not in terms of money but they were on how fast we can grow, profitability, etc. since Delivery Hero is looking for an IPO in the next few years. These were the discussions that happened if we thought of saying no to the deal.”

Funding another round wasn’t a big ask since Delivery Hero is heavily funded. In September the company raised $350 million in financing. This brings the total amount raised this year alone by Delivery Hero to $520 million, and the overall total raised to $635 million. “Money was never an issue for Delivery Hero and lets say if this deal would have not worked it wouldn’t have forced Delivery Hero to close down its business in India which is right now a perfect time for the online food business.”

Arun Prabhudesai, Founder at Trak.in who has seen TastyKhana growing from its early days, agrees that the market is ripe for online food business. “Shachin and his team have kept their heads down and have worked really hard over the years, they truly deserve it. I haven’t seen any founder working so hard, so diligently, for so long.”

Further he added, “Indians are slowly building a habit of doing things online so the time is really perfect for a startup like TastyKhana who has been in the business for the last seven years. This alliance will only spike up the business in the market.”

Delivery Hero and Foodpanda synergy

But the pertinent question that stands is - why did Delivery Hero need to exit from India when the market is perfect for business success. The answer lies within the growth strategy that the German company has chalked out for itself. With an IPO in mind, the company is focusing on growth markets unlike Foodpanda backed by Rocket Internet that has been focusing on emerging markets.

Both the German companies have also been backing each other by creating friendly competition. Along with TastyKhana, Foodpanda also acquired Mexican companies PedidosYa, SeMeAntoja, and Superantojo (operated by PedidosYa), which together work with 2,500 restaurants in 10 cities, from Delivery Hero.

On the other hand, Delivery Hero purchased businesses in Argentina, Chile, Colombia, Ecuador, and Peru from hellofood, a brand affiliated with Foodpanda. This only indicates that the two companies are moving forward with their expansion plans; they will start to focus on consolidation in different markets instead of competing in the same ones. “I think this is an excellent synergy by both the companies. The investment that is required for a growth market is very different from an emerging market like India. Doing this both for one company is going to be very difficult and that’s why you see the synergy which is excellent for both of them,” Arun shared.

In 2012, Foodpanda entered India keeping its focus on markets such as Southeast Asia, Russia, and Brazil. Commenting on the TastyKhana acquistion to e27, Ralf Wenzel, Co-founder and Managing Director, Foodpanda Group added, “TastyKhana, started in 2007, has been one of the first food delivery portals in India and has a great team behind it. Together with our existing Foodpanda India setup, we will be able to offer the widest selection of restaurants in over 170 cities in India.” (At the time of publishing this story Foodpanda had not responded to our questions.)

TastyKhana Team pune

Road ahead post-acquisition

Post-acquisition, TastyKhana will remain an independent brand. Together, Foodpanda and TastyKhana will partner with over 10,000 restaurants in India covering over 173 cities. With this consolidation of both businesses, Shachin feels that it is good for them as well to bring sanity in the market. This alliance will now allow TastyKhana to focus on the product, the technology and also bring more insights on to the restaurant business.

But having two different identities, will it not create problems was my next question to Shachin? He thinks that the time is right to focus on how to win the market and being independent helps, otherwise you will have to focus on how best to integrate. “We want to be the JustDial of online food delivery and completely capture the market. The entire decision to keep separate identity was made on the basis that we be so big enough that competition cannot catch up and we set the food ordering benchmark. After which we can look at the future.”

However, he was quick to back it by saying that the future is uncertain but whatever decisions would be taken will be rational and whatever is good for the business.

The future is uncertain but the present has given the much needed eyeballs to TastyKhana in the Indian startup community and media circles that always believed in less unnecessary PR buzz. Not just the founders, the team has also been quietly sticking to the company during its ups and downs over the years.

For all the hard work by his core team, Shachin proudly shared that TastyKhana made sure to reward everyone who had backed the company since its early days. “I made sure to make those people happy who had taken salary cuts, put their heads down and believed in what I was doing from day one. So here is my time and I felt that it was my responsibility to make them happy when money was coming our way.” A rare gesture in the Indian startup community indeed!

I didn’t interrogate the proud founder on how much he has shelled out because it’s the intent that matters rather than the amount. But you can still make a wild guess with Shachin’s tweet:

The Indian food delivery market is experiencing a sudden adrenalin rush - the increasing competition, VC’s ready to push money into this business, Foodpanda’s focus on India market, Ant Farm acquiring a food delivery service Meals on Wheels to enter the online food delivery segment, JustDial also entering the market and now TastyKhana’s acquisition. “The market is ripe and this deal will only bring structure to the market in the coming years,” added Arun.

With these acquisitions, Foodpanda wants to accelerate growth and become the ‘Amazon’ of food ordering in emerging markets. Acquiring TastyKhana is one of its strategic move in India considering the hard-working and grounded team powering the Pune based startup.