dunzo: Dunzo may see valuation drop to $200 million in $35 million rights issue

Quick commerce startup Dunzo is seeking a final nod from its board to raise up to $35 million through a rights issue even as some of its investors are of the view that the valuation of the beleaguered startup be slashed to about $200 million – or one fourth of its peak value of $800 million – for the critical financing round, several people aware of the matter said.

While a few of the existing investors have committed around $10-15 million in capital at the reduced valuation, the company’s board is yet to clear the proposal, they added. Further, a meeting scheduled for last week is now expected to take place later this week. Company founder and CEO Kabeer Biswas is expected to seek clearance from the board, including top shareholders like Reliance Retail, Google and others, in the coming days to close the much needed funding, the sources said.

“The current commitment is at around a $200 million valuation. That’s also the blended average for most investors in the firm before it was valued at close to $800 million,” according to one investor privy to the discussions.

“This money is also committed to the fact that it (Dunzo) will become a B2B company for all practical purposes doing delivery for business customers,” the person said, while adding that “everyone putting in the capital needs to agree on the new valuation.”

The crisis-ridden startup firm has drastically reduced the scale of its quick commerce operations to conserve cash over the past year. It no longer needs to operate its own dark stores as it offers services through third-party grocery stores.

Multiple sources said the fate of its consumer business looks very bleak and discussions in the past few weeks have revolved around completely doing away with it.

Also read | ETtech Recap: Decoding Dunzo’s deepening crisis in five stories

“The company has proposed 70-80% of business to come via Dunzo Merchant Services but it could be the only remaining business. Dunzo internally sees it as delivery as well, except it is for a B2B client like JioMart and others,” this person said.

ET had reported on August 22 that Reliance Retail–which owns 26% in the firm – was not in favour of a significant reduction in valuation as it had invested as much as $200 million in Dunzo during the funding round of $240 million in January 2021.

Meanwhile, multiple people in the know said Dunzo has also received an advance-stage proposal for an investment related to its dark store traffic data and ONDC business but that is unlikely to garner interest from the founder as well as the board, they added.

Dunzo declined to comment. An email sent to Reliance Retail did not elicit any response on the matter till press time Tuesday.

These developments come at a time when recent company filings revealed that about five members had exited from its board of directors over the past two months.

Ashwin Khasgiwala, group chief of business operations at Reliance Retail, and Rajendra Kamath, finance head at Reliance Retail, left the Dunzo board on August 3. Vaidhehi Ravindran, a partner at Lightrock India, resigned from the board on August 21. On August 29, co-founder Dalvir Suri left the board.

ET was the first to report on October 2 about Suri’s complete exit from Dunzo.

Mukund Jha, cofounder and chief technology officer, at Dunzo, also resigned from the board but he continues to be with the company. He too has discussed his exit eventually a few months down the line. Both Jha and Suri had negligible equity in the firm which was diluted in the last round. Ankur Agarwal is the other co-founder at the firm.

“Mukund (Jha) remains an integral part of Dunzo’s leadership team. While we are restructuring the org with new leaders driving key mandates, Mukund will continue to be an important part of the strategic leadership team guiding and directing Dunzo’s future roadmap,” a spokesperson for Dunzo said on Jha’s role at the company.

The exits from the board were first reported by digital publication The Morning Context.

Two sources aware of issues at Dunzo said among the reasons for the board exits is also the legal notices Dunzo has received over the past few months, which brings additional liability to directors of the company in case the firm is sued or gets into a conflict with vendors.

Delayed again

Dunzo is yet to pay a portion of employees’ salaries for June and the entirety of July salaries. These dues are expected to be cleared in January-February of 2024; the company informed employees on September 25.

Recent layoffs have been aimed at bringing headcount to 200.

“They (Dunzo) have estimated moving to a new office, which will mean rents will come down to about Rs 4 lakh a month from Rs 20 lakh,” one of the people said.

Dunzo used the payroll financing app OneTap to pay employees their August salaries. The firm had earlier received legal notices from vendors like Google India, Facebook India, Koo, and Glance over unpaid dues of over Rs 11.4 crore.