Reliance Retail-backed Dunzo People familiar with the matter say that Dunzo is looking to raise $100 million (Rs. 825 crore) via convertible notes. This joins a growing number of startups who have turned to alternative funding options to protect their valuations. People in the know say that Dunzo is seeking capital to expand its Quick Commerce service, Dunzo Daily. According to people, the round is nearing completion and could settle in the range $70-100 million. Bengaluru-based startup wanted to raise at most $150 million through a stake sale. However, its decision to convert convertible notes highlights the ongoing funding freeze for large startups that need capital to support their businesses. One person familiar with the talks said that the deal would settle for closer to $100 million, but not closer to $150 million. Convertible notes are a popular tool for raising funds, which is why Dunzo will not be able to assign a valuation to itself immediately, as investors are cautious. Investors in India and around the world have seen a dramatic reversal in sentiment regarding quick-commerce models, which promise delivery of groceries within 15-30 mins.
ETtech Long Read: Quick commerce may find it tough to bag new users, investors in 2023
People briefed on the matter indicated that Dunzo’s largest investor, Reliance Retail, is likely to write a smaller check in this round than it did last year. Dunzo was valued at $775 million last January 2022.
Abu Dhabi Investment Authority (ADIA), is one of the new investors that are expected to join this round. Reliance’s Jio Platforms is owned by the sovereign wealth fund. Sources claim that Dunzo had also held discussions with Temasek in Singapore, but these seem to have failed. According to the source quoted earlier, most late-stage startups raise capital using instruments that don’t affect their valuation in a tightening funding climate. “They (Dunzo), are still trying to attract one or two additional external investors to the round,” another person stated. Kabeer Biswas, chief executive of Dunzo, and ADIA spokesperson declined to comment. Reliance Retail’s chief executive Kabeer Biswas and Temasek declined to comment on emails sent Thursday. Reliance Retail holds 25.8% of Dunzo. Google, another major investor, holds a mere 20% stake.
According to industry tracker Venture Intelligence, venture funding for startups fell by 30% to almost $24 billion in 2022.
Nearly 64% of respondents to ET’s State of Startups survey (reported on December 30,) had stated that they expect an improvement in the funding situation only by the second quarter of 2023. However, more than 21% of those polled said that it could get worse than the year before.
It is possible to optimize your costs quickly
Dunzo has been working to reduce costs at its quick-service company, much like competitors such as Zepto’s Instamart and Zepto’s Zepto. BB Now is the only quick commerce player that has been aggressively growing due to new funding from Tata Digital, its parent, and other investors.
ET reported Wednesday on the difficulties 30-minute delivery platforms face in scaling their ventures, while also trying to stop rising spending and discounting.
Dunzo has changed its cost structure after spending more than Rs 100 million per month on promotions for the Indian Premier League. It was encouraging users to place orders in bulk and encouraging them to choose delivery times of 60 minutes. It also offers a pick-and-drop service to goods and a marketplace business that delivers groceries, medicines, and meat. It also attempted to offer food delivery, but it was gradually phased out last year.
Dunzo is not the only major quick commerce player. Zepto, which is backed by Y Combinator, is also part of Swiggy. Meanwhile, Instamart and BB Now are funded by their parent companies Zomato, Tata Digital and Tata Digital. In May 2022, Zepto raised $200 million.
Creativity is key to funding
Dunzo is one of the latest Indian startups to choose convertible notes for funding. Startup for business-to-business ecommerce Udaan had raised nearly $400 million in convertible bonds While PharmEasy, and other companies This route was also used to raise capital. To fund their daily operations, many startups issue debt. Convertible notes are linked to future funding or liquidity events like an IPO. In this case, incoming investors will receive a discount on pricing compared with others. In November, Dunzo took $6 million of Blacksoil debt. Dunzo’s Biswas stated that the company planned to launch an IPO in 2025 at the time of the Reliance Retail investments. One person briefed on the matter stated that the debt from Blacksoil was mainly a short-term capital arrangement, while the ongoing round of investment is being closed.