Startup HomeLane has acquired its smaller competitor DesignCafe in a share-swap deal that values the combined entity at INR 3,000 crore. After this acquisition, HomeLane successfully raised INR 225 crore from new investors, which include Sunil Kant Munjal's Hero Enterprise and Claypond Capital, the family office of Ranjan Pai from the Manipal Group. Existing investors such as WestBridge Capital also participated in this funding round.

Following the merger, which is currently awaiting regulatory approval, the newly formed entity is on course to achieve a revenue of INR 1,000 crore in the ongoing fiscal year 2025. This represents an increase of 31.4% from the revenue of INR 761 crore reported in the previous financial year. HomeLane's co-founder, Srikanth Iyer, informed ET earlier this week that the company is also aiming for profitability at the EBITDA (earnings before interest, taxes, depreciation, and amortisation) level.

Currently, the combined entity boasts an annual recurring revenue of INR 900 crore and is cash-flow positive. HomeLane and DesignCafe will maintain their operations as independent brands, each focusing on distinct market segments, Iyer mentioned. Together, they run 82 stores across the nation and employ approximately 2,750 individuals. Iyer expressed confidence in the brands' continued existence, stating that Indian consumers in the interior design sector desire choice, and the aim is to provide them with that variety. He noted that they view this as different brands catering to various sub-segments within the ecosystem they are currently serving. Additionally, the company is considering an initial public offering within the next 9 to 15 months.

Tanuj Choudhry, co-founder of HomeLane, remarked that as they consider an IPO in the short to mid-term, it is essential to ensure they are well-capitalised to withstand any potential shocks. He noted that the real estate market is experiencing a significant growth phase. The consolidation of these two firms occurs amidst a slowdown in business volumes within the home services sector and a freeze in funding. Founded in 2014, HomeLane operates various brands, including Doowup, Cubico, and Wrapzap, and has served approximately 45,000 customers across 30 cities through more than 60 experience centres. Prior to this deal, HomeLane had raised USD 133 million in total funding, while DesignCafe had secured USD 79.1 million, which included USD 5 million from WestBridge Capital and venture debt from Alteria Capital in March 2023.

In June 2023, HomeLane raised USD 9 million through convertible notes. Iyer stated that the new capital infusion will be directed towards driving growth and technology investments, with a strong emphasis on achieving profitability. He highlighted the company's strategy to expand its presence in the middle and lower-middle market segments.

He pointed out that there is a significant trust deficit in this segment that can be addressed by establishing a brand perceived as trustworthy in the long run. He noted that consistent investment is essential for this goal. In 2022, DesignCafe launched Qarpentri, while HomeLane introduced Doowup in 2023. Meanwhile, Livspace, which is backed by Ikea and is the largest player in the home decor sector, is also contemplating an IPO by 2026, as reported by ET earlier this week. Livspace was previously mentioned as being in discussions to acquire HomeLane.

Shezaan Bhojani, co-founder of DesignCafe, mentioned that HomeLane has established itself as a strong tech platform, while DesignCafe has developed a robust design DNA. He expressed that the merger of both companies will effectively address each other's gaps and will accelerate their path towards a public event for both the companies and their shareholders. From this standpoint, he noted that it appears to be the most rational course of action.

Munjal, chairman of Hero Enterprise, stated that their investment reflects confidence in HomeLane and Design Cafe business model and also creates meaningful synergies with Hero Realty. He expressed anticipation for the innovation and growth that this partnership is expected to foster.

The merger between HomeLane and DesignCafe marks a significant development in the home interior services sector, combining strengths to create a formidable entity poised for growth. With a focus on enhancing brand trust and addressing market needs, both companies are strategically positioned to capture opportunities in the middle and lower-middle market segments. The backing from key investors further bolsters their ambitions, paving the way for an IPO within the next year or so. As they innovate and expand, the collaboration is likely to reshape the landscape of home design and services in India.