According to a report by ET, at least two well-funded startups — Fashinza and Virgio — backed by the likes of Accel and Alpha Wave have initiated a process to return most of the capital they had raised, after a change in their business models, people aware of the matter said.
According to sources, both startups had struggled to gain traction with their original business plans, prompting them to return a portion of the funds they had raised.
This comes after a record-breaking funding cycle throughout 2021 and parts of 2022, as investors globally turned cautious when allocating capital.
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Gurugram-based Fashinza, a B2B fashion startup valued at approximately $300 million in its last valuation, is returning capital to investors as it transitions into a “manufacturing startup” within the same industry. This shift is expected to lead to a decrease in the company’s valuation, as stated by sources. Pawan Gupta, Fashinza’s co-founder and CEO, confirmed this development.
Amar Nagaram, the former CEO of Myntra, has initiated the process of returning a portion of the remaining capital raised by his fashion venture, Virgio. Virgio, which secured close to $40 million in multiple funding rounds, has shifted its focus to circular fashion, emphasizing sustainable practices such as recycling, upcycling, and waste reduction in the fashion industry. The venture also received investments from Accel, Alpha Wave, Prosus Ventures, and other backers.
Bengaluru-based Virgio recently concluded a buyback of 12.4% of its shares “to optimize the capital structure” of the company, according to regulatory filings sourced from the Registrar of Companies.
“Fashinza and the broader business-to-business fashion marketplace business of connecting suppliers to brands hasn’t worked at all. Accel is also backing Newme (another fast-fashion brand) after the promise of Virgio becoming fast fashion did not go as per plan,” a person aware of the goings on at both startups said. “More ventures may do the same, going forward.”
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Attempts to contact Virgio founder Nagaram via email and messages remained unanswered.
According to Gupta of Fashinza, over the past year, the company came to the realization that they were evolving into more of a manufacturing entity rather than remaining solely a marketplace. The company’s latest equity funding round amounted to $60 million in May 2022.
He mentioned that all investors will receive their capital back.
“The founders, team and the board felt that this was the right direction for a company like ours to take. Marketplaces are very scalable, they can grow very fast. The call we took was to compromise on scalability and build something that we believe in,” Gupta said, adding that Fashinza’s previous valuation and potential outcome for return on investment were based on marketplace business. “To take the new path to become sustainable, we had to reset the valuation. It is a pivot that we’re making,” he added.
As per his statement, although Fashinza will continue operating within the same industry, the business model will undergo a significant change. Following the return of capital, the company anticipates retaining enough cash reserves to support its operations for the next two years.
“Now that we’re building in manufacturing, we don’t need so much capital to spend on things like marketing. At the same time, we also need to reduce the valuation so that we can go to the market quickly (to raise funds when needed),” Gupta said. According to him, the exact drop in valuation and other contours for returning the money are still being finalised.
“It had to be done. Once they launched and figured it wasn’t working out and made a pivot. That won’t require all this capital now,” another person aware of the matter said.
In October of last year, Virgio ceased its fast-fashion operations and announced its transition to a circular fashion brand. Despite this shift, the company still had approximately $25 million remaining in its bank account. This decision was preceded by the departure of senior-level executives and subdued sales performance.
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