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HomeNewsDunzo's financial distress intensifies amidst shareholder disputes over valuation decrease

Dunzo’s financial distress intensifies amidst shareholder disputes over valuation decrease

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Differences among shareholders regarding the degree of Dunzo’s valuation decrease are currently hindering the acquisition of fresh financing for the distressed quick commerce startup.

People familiar with the negotiations have stated that Reliance Retail, holding the largest stake of 26% in Dunzo, opposes the notion of reducing the startup’s valuation by almost 50% in an upcoming funding arrangement orchestrated by a consortium of current investors.

This substantial reduction would result in a noteworthy depreciation of value for the telecom-to-retail conglomerate’s $200-million investment, which was injected into Dunzo as part of a $240-million funding round in January 2022, as mentioned by the sources.

At that time, the financially strained startup, which also boasts Google among its investors, held a valuation nearing $800 million.

The extent to which Dunzo can secure additional capital through its vigorous endeavors will now hinge upon the unanimous consent of all its investors to accept a decreased valuation, as stated by the sources.

The significant decline in the consumer business of the Bengaluru-based company, which was at its peak during the investment by Reliance Retail last year, has been the catalyst for the ongoing reduction in Dunzo’s valuation.

“There is a soft commitment of multiples of tens of millions for Dunzo, but for these conversations to close, the valuation needs to be finalised, and with Reliance Retail’s cash, the total pool can be widened, which the firm needs on priority,” said one person aware of discussions.

Over the past few weeks, Dunzo has been in contact with several family offices, including Premji Invest and Kiran Mazumdar-Shaw of Biocon, among others, aiming to establish a new group of investors. The company has been extensively involved in pursuing additional capital, even at a substantial reduction in valuation, as it is facing urgent deadlines to settle unpaid salaries and vendor obligations, according to several informed individuals.

A representative from Premji Invest declined to provide any comments, and emails sent to the office of Mazumdar-Shaw yielded no response. Email queries to Reliance Retail and Dunzo also remained unanswered.

“Beyond the immediate fundraise, Dunzo will likely need further clarity from Reliance on its long-term plans for the company. There is some hope that Reliance will step in, given their retail experience and ecommerce ambitions,” said Satish Meena, an ecommerce analyst.

Dunzo has encountered challenges in raising capital in recent instances before. It was reported on July 18 that the company had managed to secure only approximately $45 million out of the intended $75 million funding through convertible notes. Despite actively seeking equity investment opportunities since late last year, the efforts did not yield results, as stated by several individuals familiar with the situation.

In recent weeks, the financial challenges at Dunzo have worsened, as reported by insiders. Last week, the company faced difficulties in maintaining operations at all its Bengaluru dark stores due to delays in payments to its dark store workers, also known as pickers, according to sources.

“It (Dunzo) has been rotating the operation of dark stores. (They) keep shutting some stores when others are open, with delivery workers stepping in to help run stores,” the people cited said.

Bengaluru, where Dunzo is headquartered and holds its largest market presence, currently remains the sole city with a limited number of operational dark stores, following a significant downsizing of its B2C vertical, Dunzo Daily. This shift in scale is also evident in the range of services offered. In central Bengaluru, for example, several densely populated areas no longer have access to “instant delivery,” which used to take 20-35 minutes. As a result, users are left with the “no rush” option, which can extend to a delivery time of 75 to 90 minutes. Meanwhile, the company’s operations in other cities are now exclusively managed through partner stores.

Sources aware of the troubles said they have been in the making since at least the beginning of 2023. “There were several internal discussions at the start of the year on whether Dunzo should just wind up from all other cities and be in Bengaluru, where it has a chance to become profitable. However, the company kept managing its issues, while hoping new money would come soon, which led them to raise more debt,” said one of the people cited above. “That really is the main problem, looking back.”

In the midst of the ongoing financial constraints, Dunzo has been experimenting with increased order values to qualify for free deliveries, along with a comprehensive revision of fees for its pick-and-drop services and other offerings.

“I think the numbers that have come out from Blinkit and Zepto give some hope of profitability in the quick commerce space. However, the model has to be pursued for a while, and Dunzo has to survive (for that). A valuation cut in this environment might be inescapable,” Meena said.

A key issue for Dunzo, to start with, is to pay its staffers. “The vendor dues, honestly, have been there for a few months before it became public, but right now, the salary dues are the main concern,” said a person aware of matters.

Another person said the new funding is to “just survive” the current spate of problems and figure out a stable future — albeit, at a much smaller scale.

On July 20th, it was reported that the company had postponed salary payments for both June and July, with the intention to disburse them in September, along with the August salaries. Additionally, over the past eight months, Dunzo has also laid off nearly 400 employees.

The fast-paced commerce entity is currently dealing with legal notifications from Google India, Facebook India Online Services, Koo, Glance, and various other entities due to unpaid vendor dues. Estimates suggest that the accumulated vendor debt amounts to approximately INR 11.4 crore.

Read More: Cash-strapped Dunzo faces legal notice from Facebook and Nilenso over unpaid dues

Also Read: Legal troubles mount for struggling Dunzo as companies seek payment resolution

“At this point, most people are looking to move on… not getting salaries is as good as not having a job, and even full and final settlements of those being laid off are being pushed to the end of the year,” expressed an employee.

Receiving a fresh funding injection from any group of investors would provide Dunzo with the opportunity to renegotiate its debt agreement.

On August 15th, it was reported that Dunzo engaged in discussions with its creditors to reconfigure the credit conditions, aiming to access a portion of the funds currently held in its bank account.

Compounding its challenges, Reliance JioMart, the principal client of Dunzo Merchant Services (DMS), reduced the compensation for final-mile deliveries in June. This decision by JioMart, constituting a significant portion of DMS’ overall operations at 30-40%, resulted in a reduction of gross margins for DMS stemming from its services provided to JioMart. In cities like Bengaluru, this adjustment has led to a contraction of gross margins ranging between 50-75%.

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