Both had failed to find traction in the original business plans for which they had raised the funds and so are now returning part of the money, the people said.
This comes after a record-breaking funding cycle through 2021 and parts of 2022 before investors across the globe turned cautious while allocating capital.
Gurugram-based Fashinza — a B2B fashion startup which was last valued at around $300 million — is returning capital to investors and is trying to become a “manufacturing startup” in the same space. In doing so, the company will also see a reduction in its valuations, the people said. Fashinza cofounder and chief executive Pawan Gupta confirmed the development to ET.
Former Myntra CEO Amar Nagaram’s fashion venture Virgio, which raised close to $40 million in multiple tranches, has also begun the process of returning a part of the remaining capital to investors, after turning the focus to circular fashion, which promotes sustainable practices like recycling, upcycling and reducing waste in the fashion industry. Virgio also raised funds from Accel, Alpha Wave, Prosus Ventures and others.
Bengaluru-based Virgio in January concluded a buyback of 12.4% of its shares “to optimise the capital structure” of the company, according to regulatory filings sourced from Registrar of Companies.
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“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.”An email and messages sent to Virgio founder Nagaram did not elicit any response.
Fashinza’s Gupta said over the last 12 months, the firm realised they were tending to become a manufacturing company more than a marketplace. The company had last raised $60 million in equity funding in May 2022.
He said capital will be returned to all investors.
“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.
According to him, while Fashinza will remain in the same industry, the model is different. After returning capital, the company expects to retain cash to sustain operations for two years, he said.
Also read | Amid pivot from fast fashion, Virgio fires 30% of staff
“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.
Virgio shut its fast-fashion business in October last year and said it is becoming a circular fashion brand. At the time, it still had about $25 million left in the bank and was preceded by senior level exits along with muted sales.