phonepe dunzo merchant business: PhonePe explored investment in Dunzo’s merchant business

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Walmart-backed PhonePe recently made an offer to cash-strapped Dunzo to invest a significant amount in its merchant network business, at a time the latter is desperately seeking cash, sources aware of the talks said.

The proposal, however, didn’t move forward due to concerns among the troubled startup’s investors due to the strategic nature of PhonePe, which is majority owned by Walmart after its split from ecommerce firm Flipkart, these sources involved in the discussions said.

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PhonePe conducted weeks of due diligence even as Dunzo had started to show clear signs of its cash reserves depleting. Dunzo had engaged with PhonePe hoping an investment would be able to clear at least a part of its mounting debt, people aware of the dynamics of the conversation said.

Dunzo needs approval from Reliance Retail — which owns nearly 26% in the firm — before any new investor, especially a strategic investor like US retailer Walmart or others, can invest in the company.

“Reliance Retail has not been approached with any such firm proposal that could be considered,” a spokesperson for Reliance Retail said, adding that the information on PhonePe’s offer is factually incorrect. PhonePe declined to comment on the matter.

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Dunzo chief executive Kabeer Biswas said he has no comments to offer on “hearsay stories”. “We are trying to run a profitable growing business and would continue to keep our heads down and execute,” he said in an email response to ET’s query.

According to people in the know, Dunzo explored the deal as it has around Rs 400-500 crore of liability and this would have helped to clear this . PhonePe– which has raised new capital at a $12 billion valuation – was interested in Dunzo on the back of its ecommerce ambitions through Pincode, which it runs on the ONDC (Open Network for Digital Commerce) network. It is looking to onboard merchants across ecommerce use cases and has been spending on user acquisition and discounting on the Pincode platform, people mentioned above said, citing the payments company’s interest in the troubled delivery firm.

“PhonePe was the most aggressive in terms of the interest they had shown for the asset and despite the annoying crisis, Dunzo has built one of the largest third-party merchant networks on its platform. That would be a ready asset for a new entrant like PhonePe to scale up the ecommerce venture,” a person aware of the talks said. “Another new-age company had shown interest, but those talks fizzled out quite early and wasn’t taken to investors,” this person added.

While PhonePe’s talks have collapsed, it adds to the ongoing efforts of Dunzo to survive the mounting challenges. ET reported on December 11 saying Reliance Retail is yet to commit to making fresh investment in Dunzo, which is in dire need of capital

“There are conversations underway on how to settle the liabilities with creditors amid the ongoing crisis, with creditors thinking if something can be recovered instead of nothing,” one of the people mentioned above said.

The quick-commerce startup has been struggling to pay even a skeleton staff and has been facing increasing pressure from vendors on pending dues as well.

ET reported on October 10 that all material payments from the company were being reviewed by the board and investors such as Reliance Retail.

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