Dunzo quick commerce startup’s very survival is in jeopardy as its largest investor, Reliance Retail, hesitates to commit to a proposed rights issue. Sources reveal that the company, in desperate need of funds, is teetering on the brink, struggling to meet basic operational costs and facing skepticism from other investors about its viability.
After numerous rounds of discussions, an impasse has been reached between Dunzo and Reliance Retail, leaving the startup in a precarious position. CEO Kabeer Biswas, in efforts spanning several months, has attempted to secure a fresh financing round, but the fate of Dunzo hinges on Reliance Retail’s participation and clearance for the crucial cash infusion.
Uncertainties loom large, as Dunzo remains mired in uncleared dues to former employees and vendors, further complicating its financial landscape. Talks between Reliance Retail and Dunzo have reportedly fallen through, and the absence of a clear commitment from the conglomerate, which holds a substantial 26% stake, adds to the uncertainty surrounding the startup’s future.
Simultaneously, Biswas has been exploring alternative sources of capital, yet these efforts have yielded little success thus far. The urgency is underscored by Dunzo’s failure to clear multiple dues, including payments to former employees and vendors, prompting a review by the board and investors, including Reliance Retail.
The prospect of a down round, with a valuation lower than the previous round, looms large over Dunzo. This raises concerns among investors, particularly Reliance Retail, which injected a substantial $200 million in January 2022. The startup, valued at nearly $800 million in January 2022, is now faced with a potential crash to $200 million, signifying significant value erosion for its largest investor.
As Dunzo grapples to keep its operations running, a noticeable decline in the scale of its consumer and business-to-business (B2B) operations has been observed. Monthly order volumes have plummeted below one million, a far cry from the peak of over 5 million orders per month last year. The company’s strategic moves, including testing higher delivery pricing, have diverted traffic to rival platforms.
Job cuts have become inevitable, with Biswas committing to investors that Dunzo will have no more than 200 employees. However, this commitment is contingent on new capital injections, and the cash-starved startup has assured employees that November salaries will be deposited soon, based on assurances from investors.
Reliance Retail’s role as a strategic investor adds complexity to Dunzo’s plight. Other potential investors are looking to Reliance Retail for leadership or at least participation in the funding round to provide clarity on the startup’s future.
Dunzo’s financial woes are further highlighted by a staggering loss of about Rs 1,802 crore in FY23, nearly four times wider than the previous year. Despite revenue expansion to Rs 226.6 crore, total expenses skyrocketed to Rs 2,054.4 crore in FY23. The exit of cofounders Dalvir Suri and discussions of an exit plan by CTO Mukund Jha further underscore the depth of the crisis.
The current crisis at Dunzo draws parallels with other startups, such as Byju’s, facing financial troubles. Delays in salaries serve as a red flag, signaling a genuine crisis. In the broader startup landscape, rationalization of soaring valuations has become a trend, exemplified by PharmEasy’s need to raise new capital through a rights issue at a substantial discount to its peak 2021 valuation.
