Dunzo, the quick commerce startup, is currently seeking at least USD 20 million (about INR 165 crore) in additional funding from its largest shareholder, Reliance Retail. The discussions come after Dunzo fell short of its target to raise USD 75 million through a recent offering of convertible notes, as per sources familiar with the matter.

According to sources, the company based in Bengaluru faced a challenging cash flow situation as it managed to secure approximately USD 45 million in April. However, only Reliance Retail and Google showed interest in subscribing to the convertible notes, while the company’s other shareholders opted out.

During a town hall with employees, Kabeer Biswas, the Founder and Chief Executive of Dunzo, explained that the company had faced a “cash-flow issue” leading to the deferral of June salaries exceeding INR 75,000.

Read More: Hyperlocal commerce player Dunzo defers salaries for some employees, cites cash-flow constraints

Reliance Retail currently possesses a 25.8% stake in Dunzo, whereas Google’s ownership stands at just under 20%. The ongoing discussions suggest that if the talks culminate in an additional investment by the conglomerate led by Mukesh Ambani, its shareholding in the startup is likely to expand.

“They need more cash and have held discussions with Reliance Retail to invest around USD 20 million. It is not clear if Reliance Retail has given any clear answer to that yet,” said one of the people briefed on the matter. “Dunzo can’t really tap any other strategic investors because of Reliance’s presence as well.”

No response was received to the emails seeking comment sent to Dunzo and Reliance Retail.

In April, Reliance Retail and Google both invested in convertible notes, but Dunzo’s capacity to secure additional funding from existing and new investors hinged on the company’s business stabilization and its ability to meet specific metrics following the shift in its business model.

Until April, Dunzo was reportedly generating an annualized revenue run-rate of approximately USD 300 million. However, there has been a significant decrease in this figure since then. Despite having enough capital to sustain operations for approximately 8-10 months, Dunzo is actively seeking to reduce costs in order to extend its cash runway.

The company decided to downsize its Dunzo Daily grocery quick-delivery services, resulting in the unfortunate layoff of approximately 300 employees.

Dunzo, a venture capital-backed company supported by firms like Blume Ventures and Lightbox, has been strategically streamlining its operations in recent months. As the initial hype surrounding quick commerce has subsided, Dunzo made necessary adjustments. Prior to the April financing, the company had already closed down half of its dark stores. However, it appears that this figure has now escalated to approximately 70%, indicating further consolidation in its operations.

“You will never see a dark store in Indiranagar (a high-order-density location in Bengaluru) getting shut, but overall they have reduced their own dark stores by 70% now as the focus is to hit operating profitability,” one of the people said.

Additionally, there has been a shift in focus towards Dunzo Merchant Services (DMS), the company’s business-to-business unit. DMS has seen significant contributions from various sources, with Reliance Retail’s JioMart ecommerce arm emerging as the largest contributor, responsible for over 40% of the business volume.

“CEO (Biswas) has mentioned it internally as well that focus will be on B2B as that will not require the kind of capital needed to sustain Dunzo Daily — where its rivals are still expanding albeit at a much slower space than before,” another person said.

As per his statement, Dunzo continues to maintain its leadership position in pick-up-and-drop services, but it no longer ranks among the top two in quick commerce or related industries.

Swiggy Instamart, Zomato’s Blinkit, BB Now from BigBasket, and the Mumbai-based newcomer Zepto are among the competitors in the fast-paced realm of quick commerce.

DMS handles over 30,000 daily orders, primarily focusing on last-mile delivery services, operating across seven cities. Initially, Dunzo had ambitious plans to extend DMS’ operations to 15 cities. However, those expansion plans have been subsequently canceled.

DMS accounts for approximately 35% of Dunzo’s total revenues, catering to a vast network of over 25,000 merchants. The foods sector constitutes a significant portion, encompassing around 65-70% of these merchants, among which notable names like McDonald’s, Licious, and Theobroma are included.

The DMS core team, led by Co-Founder Dalvir Suri and vice president of sales C Sumit Anand, comprises approximately 20 members. Initially operating independently from Dunzo’s other divisions, the DMS team has been progressively collaborating with the product and analytics teams on the B2C side, according to insiders.

Dunzo operates multiple platforms catering to various needs, including medicines, groceries, pet supplies, meat, and more. Merchants using these platforms are subject to a commission, while the users of these services are charged a delivery fee.

Following Reliance Retail’s initial investment of USD 240 million in January of the previous year, Dunzo embarked on an assertive marketing drive for Dunzo Daily. According to internal presentations, the company’s expenses during the June quarter amounted to over INR 100 crore, approximately USD 15 million. However, in July 2022, Dunzo decided to scale down its operations in response to the significant expenditure incurred.

“Essentially, it has gone back to the marketplace model and continues to have the partnership model with large retailers. It never ended third-party partnerships but was focusing more on Dunzo Daily,” one of the people mentioned earlier said.

Last week, it was reported that the company had internal plans to reduce costs by 5-7% each quarter. However, there is now a possibility that this cost-cutting initiative might be extended to early double-digit figures.

According to sources, the decision to limit the June salary payment has had a negative impact on employee morale, leading to an increased number of employees actively seeking alternative job opportunities.

“No one wants to be caught in the sinking ship … people are trying to jump ship before things get worse,” one of the people said, declining to be identified.