Walmart-backed PhonePe recently made an offer to cash-strapped Dunzo to invest a significant amount in its merchant network business, at a time the latter is desperately seeking cash, sources aware of the talks said.
However, the proposal did not progress as investors of the struggling startup expressed reservations. This hesitation stemmed from the strategic implications of PhonePe, primarily owned by Walmart following its separation from the ecommerce firm Flipkart, according to sources familiar with the discussions.
Despite clear indications of Dunzo’s depleting cash reserves, PhonePe conducted weeks of due diligence. Dunzo, grappling with financial challenges, entered into discussions with PhonePe with the expectation that an investment could alleviate a portion of its growing debt, according to individuals familiar with the dynamics of the conversation.
Before Dunzo can secure investment from new entities, particularly strategic investors such as US retailer Walmart or others, it requires approval from Reliance Retail, which holds a substantial stake of nearly 26% in the company.
“Reliance Retail has not been approached with any such firm proposal that could be considered,” a spokesperson for Reliance Retail said, adding that the information on PhonePe’s offer is factually incorrect. PhonePe declined to comment on the matter.
Dunzo chief executive Kabeer Biswas said he has no comments to offer on “hearsay stories”.
“We are trying to run a profitable growing business and would continue to keep our heads down and execute,” he said in an email response.
Insiders reveal that Dunzo considered the deal as a means to address its liabilities of approximately INR 400-500 crore. PhonePe, having secured new capital at a $12 billion valuation, expressed interest in Dunzo due to its ecommerce aspirations facilitated by Pincode, operated on the ONDC (Open Network for Digital Commerce) network.
The payments company is actively seeking to onboard merchants across various ecommerce use cases. Sources mentioned earlier noted that the company has been investing in user acquisition and offering discounts on the Pincode platform, underscoring its keen interest in the distressed delivery firm.
“PhonePe was the most aggressive in terms of the interest they had shown for the asset and despite the annoying crisis, Dunzo has built one of the largest third-party merchant networks on its platform. That would be a ready asset for a new entrant like PhonePe to scale up the ecommerce venture,” a person aware of the talks said. “Another new-age company had shown interest, but those talks fizzled out quite early and wasn’t taken to investors,” this person added.
Although discussions with PhonePe have fallen through, this development contributes to Dunzo’s persistent endeavors to overcome escalating challenges. A report on December 11 indicated that Reliance Retail has not yet confirmed a new investment in Dunzo, exacerbating the urgent need for capital by the struggling company.
“There are conversations underway on how to settle the liabilities with creditors amid the ongoing crisis, with creditors thinking if something can be recovered instead of nothing,” one of the people mentioned above said.
The quick-commerce startup is grappling with difficulties in compensating even a minimal staff and is experiencing growing pressure from vendors regarding outstanding dues.
On October 10, it was reported that the board and investors, including Reliance Retail, were reviewing all significant payments made by the company.