Disagreement Over Valuation Markdown Halts Dunzo Fundraising Plans

A disagreement over the extent of the valuation markdown of Dunzo has stopped the quick commerce startup in its tracks to raise funding.

Reliance Retail, which holds a 26% stake in Dunzo, is reportedly not ready to slash the startup’s valuation by up to 50% to raise a funding round being put together by existing shareholders.

Any steep cuts will significantly erode the value of the conglomerate’s investment in Dunzo during a $240 Mn round in January 2022, ET said citing sources.

Inc42 exclusively reported last week that Dunzo was in advanced talks to raise up to $100 Mn in its Series G funding round. While sources told Inc42 that existing investors Lightrock and Lightbox are set to participate in the funding round, Reliance Retail is not too keen on the idea.

With the current situation, Dunzo’s efforts to raise capital will now depend on its investors agreeing to a reduced valuation. 

The quick commerce startup has also engaged with multiple family offices, including Premji Invest and Kiran Mazumdar-Shaw of Biocon for fundraising, the report said. 

All this comes at a time when Dunzo has been in media continuously overall unpaid employee salaries and vendor dues.

Dunzo is said to have deferred employee salaries to September, while it has an outstanding balance of more than INR 11 Cr to several vendors, some of which have also sent notices to the startup.

Dunzo has faced several challenges in raising fresh capital amid a major cash crunch. It had planned to raise $75 Mn in convertible notes but could only raise about $45 Mn after it could not raise equity funding last year.

Fresh capital from any set of investors will also help Dunzo rework its debt agreement. Last week, media reports suggested that the startup had held talks with its debtors to restructure the terms of credit to avail some of its cash lying in the bank.

Business Model Shift To Go Leaner

Since last October, the quick commerce startup has been reverting to its original business model, reducing dark stores across India to cut costs and partnering with retail stores to provide logistics services on a revenue-sharing model.

Dunzo hopes to reduce cash burn and become leaner to find a path to profitability later on. The startup also laid off around 30% of its workforce, or around 300 employees, in April this year amid mounting losses and the changes in its business model.

Bengaluru, Dunzo’s headquarters and biggest market, is now the only city where it operates a few dark stores after a scaledown of its B2C vertical, Dunzo Daily.

To add to its woes, Reliance JioMart, the biggest customer of Dunzo Merchant Services (DMS), had cut the prices it paid for last-mile deliveries in June. The move saw DMS’ gross margins reduce by 50-75%, as JioMart accounts for 30-40% of its total business.