Dunzo, the quick commerce startup that has been navigating a challenging financial phase, is encountering obstacles in its pursuit of new financing as shareholders disagree over a significant reduction in its valuation. Reliance Retail, Dunzo’s largest investor with a 26% stake, is reportedly opposed to a nearly 50% reduction in the startup’s valuation proposed by a group of existing investors, according to insiders familiar with the negotiations.
The disagreement over the valuation cut is posing a hurdle to Dunzo’s efforts to secure fresh capital to address its financial difficulties. The company’s valuation decline has been triggered by a steep downturn in its consumer business, impacting its market standing since Reliance Retail’s investment last year. The extent of the valuation decline is raising concerns, particularly for Reliance Retail, which could face substantial value erosion of its $200-million investment.
Dunzo’s frenzied efforts to secure new funding have prompted outreach to multiple family offices, including Premji Invest and Kiran Mazumdar-Shaw of Biocon, in hopes of forming a new consortium of investors. The startup’s financial constraints have compelled it to engage deeply for fresh capital even at a substantial markdown, as it races against time to cover outstanding salaries and vendor dues.
The current situation highlights the broader challenges faced by Dunzo in securing funding. This comes after the company’s previous attempts to secure funding through convertible notes only yielded about $45 million of a planned $75 million, indicating the difficulties in attracting equity investment.
Amid the ongoing cash flow crisis, Dunzo has resorted to rotating its dark stores’ operations in Bengaluru and has encountered delays in payments to workers. The startup’s focus on Bengaluru as its primary market indicates a scaledown of its B2C vertical, Dunzo Daily.
While a significant valuation cut seems unavoidable, Dunzo’s prospects for profitability in the quick commerce space have been boosted by recent examples such as Blinkit and Zepto. Nevertheless, industry experts emphasize that the pursuit of profitability will require sustained efforts, and Dunzo’s survival remains pivotal.
Dunzo’s immediate concern is to meet its financial obligations, particularly in paying pending salaries. A new funding lifeline from potential investors will not only provide relief but also pave the way for the startup to rework its debt agreement and chart a more stable future.
As Dunzo navigates these challenges, it underscores the importance of financial resilience, adaptability, and strategic decision-making in the evolving landscape of quick commerce startups. The outcome of Dunzo’s financing negotiations will undoubtedly provide insights into the startup’s ability to weather current challenges and reshape its trajectory in the competitive quick commerce industry.