An impasse after several rounds of discussions has left Dunzo’s other investors increasingly sceptical of its chances of survival in the absence of fresh funding soon, said multiple people briefed on the situation.
While Dunzo chief executive Kabeer Biswas has been trying to stitch together a fresh financing round for months, Mukesh Ambani-owned Reliance Retail’s participation and clearance for the cash infusion will be critical.
Also read | Dunzo’s business in free fall amid severe cash flow issues
Uncleared dues
“Conversations between Reliance Retail and Dunzo have fallen through. The company desperately needs capital but there is no indication yet to Dunzo that Reliance, which owns at least 26%, is going to invest,” said one of the people cited.
Multiple people also said Biswas, who is a cofounder, has been simultaneously trying to tap into alternative sources of capital, though efforts are yet to bear fruit.
Dunzo is yet to clear multiple dues to former employees and vendors. ET reported on October 10 that all material payments from the company were being reviewed by the board and investors such as Reliance Retail.
Emails sent to Reliance Retail and Dunzo remained unanswered.
Also read | Dunzo FY23 loss widens to Rs 1,800 crore, revenue jumps 4x to Rs 226 crore
Valuation shrinkage
“Obviously, it has to be a down round (valuation being lower than the previous round) and that’s been a concern among all investors and with Reliance, which put $200 million in January 2022. Biswas, too, has had his differences with Reliance on the scale of the cut in Dunzo’s valuations for new financing,” said another person aware of the matter.
“Biswas is still telling other investors that he has arranged a certain commitment, but people are losing hope… (Dunzo’s) fate will become clear either way in the coming weeks,” this person added.
The startup was last valued in January 2022, at close to $800 million, but is currently a pale shadow of its former self, in terms of scale. ET reported on October 4 that Dunzo’s valuation could crash to $200 million, which would be significant value erosion for Reliance Retail that invested the maximum capital in the last round of funding. Before the Ambani company’s investment, Dunzo was valued at around $300 million.
Biswas told ET in October he expects to “close the (funding) round in the next 90-120 days.”
Scale to snail
As it battles to keep operations running, Dunzo has seen a further slide in the scale of operations at both its consumer vertical and business-to-business (B2B) arm Dunzo Merchant Services. A few months ago, Dunzo’s monthly order volumes had fallen below one million. At its peak last year, the instant delivery company once clocked more than 5 million monthly orders, aided by marketing during the Indian Premier League.
“They (Dunzo) are testing higher delivery pricing with pick-up and drop, and third-party grocery services. That immediately results in traffic to go-to rivals,” said one of the sources cited above. “That continues to happen. Overall, the current team is a bare minimum, compared with what it used to be. That signifies the scale and challenges it can tackle on a daily basis.”
Amid several job cuts through 2023, Biswas had to commit to investors that Dunzo will have no more than 200 employees. This, too, may change if new capital doesn’t come to the company on time.
Even now, the cash-starved startup told employees that November salaries should be deposited “in a few days,” based on “assurance” from investors, even as it tries to close a bigger funding round.
Reliance commitment
“Reliance is a strategic investor,” said one of the people ET spoke with. “The others, even if willing to put in some capital, want Reliance to lead, or at least participate. Otherwise, there is no clarity if this survival money will lead to anything.”
Dunzo posted a loss of about Rs 1,802 crore in FY23, nearly four times wider than Rs 464 crore in the previous year, even as revenue from operations expanded more than fourfold — from Rs 54.3 crore to Rs 226.6 crore. Total expenses jumped to Rs 2,054.4 crore in FY23, from Rs 531.7 crore in FY22.
ETtechOne of Dunzo’s cofounders, Dalvir Suri, has exited the troubled startup, as reported first by ET on October 2. Cofounder Mukund Jha, who is chief technology officer too, has also discussed an exit plan. Ankur Agarwal is the fourth cofounder.
Dunzo’s current crisis is similar to troubles at edtech firm Byju’s, although the significance, impact and scale are much wider for the latter. ET reported on December 5 that founder Byju Raveendran told senior employees he had to borrow Rs 5 crore to clear pending salaries for November.
“A delay in salaries is the ultimate red flag. That shows the company is in a real crisis,” said a person closely tracking both companies.
Startups have, of late, been seeing rationalisation in soaring valuations. PharmEasy had to raise new capital this year through a rights issue at a 90% discount to the peak 2021 valuation of $5.6 billion. The company used it to clear a part of its debt to Goldman Sachs.
Here’s ETtech’s top stories on Dunzo crisis this year:
ETtech Exclusive: Dunzo cofounder Dalvir Suri to exit amid tough times
Dunzo’s business in free fall amid severe cash flow issues
Markdown detour slows fresh funds delivery to Dunzo
Cash-strapped quick commerce startup Dunzo eyes $20 million more from Reliance Retail
Dunzo’s auditor flagged issues with firm’s ‘going concern’ status
Reliance-backed Dunzo may cut more jobs; defers 50% of June salary amid cash crunch
Dunzo further delays salaries, more layoffs likely as it vacates headquarters
ETtech Recap: Decoding Dunzo’s deepening crisis in five stories