Groyyo also needs to recoup the large amount of receivables issued throughout this year, the people said. This will be a crucial factor for the company and its investors before it can shutter this line of business, sources added.
The people said New York-based investment fund Tiger Global is also believed to be engaging with another Big 4 audit firm for a potential forensic audit of Groyyo. However, it is not clear if that’s been finalised yet. For now, essentially, Deloitte will act as the financial controller at Groyyo to recover all receivables without which the startup’s runway could come into trouble.
A receivable is generated when a product or service is sold by a company but it is not immediately paid and is owed to the company.
“These receivables are from really small manufacturers. So this needs to be figured out,” a source added.
According to the people, the two-year-old startup valued at around $155 million stepped on the gas over the last one year on its trading business supplying yarn and other raw materials to small manufacturers.
Discover the stories of your interest
“This (trading business) gave a boost to the overall gross sales but supplying yarn from one supplier to another small manufacturer came at a big cost of negative margin. It was growing multi-fold but that’s not the best outcome of the capital for a company like this. Thus, investors have mandated Deloitte to see through the closure of the business,” one of the persons cited above said.According to the people cited above, the scale of the raw material supply business has been reduced to 20-30% of the total business but eventually, it has to be shut while taking care of the pending receivables.
ETtechStarted by former Zilingo and Udaan executives, Subin Mitra, Pratik Tiwari & Ridam Upadhyay — Groyyo’s core business has been to enable small and medium manufacturers in the fashion and lifestyle categories across South Asia as well as in the US and the UK. Groyyo has worked with some of the leading global fashion brands, people added.
Also read | Financial irregularities found at healthcare startup Mojocare after review, say investors
Email queries sent to the Groyyo, Tiger Global, and Alpha Wave Global did not elicit any response till Sunday press time. Mitra did not respond to ET’s messages and phone calls. Deloitte declined to comment.
Trading concerns
Multiple people aware of the ongoings at Groyyo said this is similar to Dealshare–another Tiger Global and Alpha Wave-backed company—where investors had to step in to put a stop to its B2B trading business and are working towards appointing a new chief executive at the Bengaluru-based company. Dealshare cofounder and CEO Vineet Rao has stepped down from his role.
ETtech“After raising capital, a lot of these companies went aggressive on such trading businesses but investors have been asking questions now, which has led to action like this–latest being Groyyo,” one of the persons cited above said.Groyyo’s precarious situation has emerged at a time when investors and boards of startups are increasingly putting more weightage to sound corporate governance practices along with sustainable business growth.
Also read | Governance lapses, irregularities prompt LPs to drive changes in startup investments
Groyyo last raised $40 million in June 2022 through a mix of equity and debt. At the time, it raised about $28 million in equity while the rest was in debt. Venture debt fund Stride Ventures and Sparrow Capital are among other investors at the firm, according to data from Tracxn. The founders own a combined more than 53% in the company.
Over the past 12-18 months, startups such as Zilingo, BharatPe, Trell, Mojocare, GoMechanic have come under the scanner for various lapses in corporate governance after raising large amounts of venture capital.