Dunzo's financial woes continue as its funding faces roadblocks, CEO asks employees with unpaid dues to avoid legal action

After over a year of negotiations and speculation, Dunzo’s current financial woes are poised to be addressed by its largest shareholder, Reliance Retail. However, this does not guarantee that the startup is entirely out of trouble yet.

Founded in July 2014 by Kabeer Biswas, Ankur Agarwal, Dalvir Suri, and Mukund Jha, Dunzo is an Indian company specializing in hyperlocal deliveries, offering groceries, pet supplies, food, medicines, and packages within major cities.

Recently, there have been reports that Reliance Retail might acquire Dunzo at a significantly reduced valuation. Reliance currently holds more than 25% stake in Dunzo, having invested $200 million in January 2022.

The discussions between the two entities have been ongoing for over a year, with Reliance potentially stepping in to rescue the startup, which has been struggling with severe cash flow issues since early 2023.

Dunzo was valued at $770 million during its last funding round, but the company's fortunes have declined since then. The startup has faced difficulties managing its marketing spend, employee costs, and operational expenses, leading it to shift focus from quick commerce to B2B deliveries.

However, the company is now reverting to its original model of retail to consumer deliveries to preserve its brand value.

Over the past year, Dunzo has experienced significant internal changes, including the departure of co-founders Mukund Jha and Dalvir Suri. CEO Kabeer Biswas and co-founder Ankur Agarwal are now working to secure additional funding to stabilize the company.

Biswas announced to employees on July 20 that key investors, including Reliance, had agreed to infuse funds to address pending salaries and dues owed to former and current employees as well as vendors.

However, as of May 19, 2024, Biswas said that the company had secured 75% of the needed funds, but there was uncertainty about the timeline for clearing outstanding payments.

In another email dated August 12, 2024, Biswas told employees that the ongoing fundraising process had hit a roadblock, with the management unable to close the transaction. If Dunzo is unable to close this deal, the company would most likely be further dragged into ongoing insolvency cases.

Dunzo informed former employees through email that while they acknowledge the right to pursue legal action for accessing funds, any actions other than finalizing the current options will only delay the process. They noted that the transaction remains incomplete and requested additional time to resolve the issue.

“Kabeer claimed the management is trying to get the signatures of all the investors to close the transaction as soon as possible and that Reliance has finally agreed to be a part of the funding. However, the management did not mention whether the nature of the transaction will be a rights issue or an acquisition,” according to one of the employees.

Dunzo’s previous foray into quick commerce through Dunzo Daily ended in withdrawal, with the company refocusing on hyperlocal deliveries for grocery stores and ONDC network partners.

The shift back to B2C operations and scaling down of the B2B vertical, which primarily served Reliance’s JioMart and ONDC sellers, reflects a strategic move to retain brand value.

According to sources, Biswas claimed that the intention is to deploy a small portion of the proposed fund infusion into B2C operations after the startup clears its existing dues.

Dunzo's expansion backfired?

Despite efforts to expand its B2B segment, Dunzo struggled to build a nationwide logistics network. Competitors like Shiprocket, Delhivery, and Ecom Express have established robust operations that cover both hyperlocal and intercity deliveries.

"Dunzo, as such, has not been able to expand its client base when the industry saw exponential growth on the back of the rise in quick commerce players and the D2C ecosystem. Its multiple attempts to raise funding since last year have been blocked by several shareholders that acted as a roadblock. Besides, dependence on a few business clients for B2B has also not served it well,” according to a partner at a fund that has invested in Dunzo.

The startup's financial troubles are evident in its mounting losses, which surged to INR 1,801 crore in FY23 from INR 464 crore in FY22. Cumulative losses have exceeded $150 million, with revenues around $12 million from 2018 to 2022.

Though cost-cutting measures might reduce losses in FY24, the company is expected to experience a decline in revenue due to persistent cash flow issues.

A sequence of defaulted payments

In addition, Dunzo defaulted on payments to two key vendors who have taken the e-commerce company to NCLT (National Company Law Tribunal) for recovery of the dues. Betterplace Safety Solutions moved the NCLT in Bengaluru against Dunzo for unresolved payments to the tune of INR 4 crore. Both companies are currently in talks for a settlement.

Further, a group of creditors — Invoice Discounters of Dunzo Digital — filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, alleging that the Reliance Retail-backed startup has cleared only 50% of its dues to such creditors.

The NCLT also admitted Velvin Packaging Solutions Private Limited’s insolvency plea against the quick commerce startup.

Dunzo also owes approximately INR 11.4 crore to advertising partners and vendors such as Google India, Facebook India, and Glance.

Despite being an early player in quick commerce, Dunzo has failed to compete effectively against rivals like Blinkit, Swiggy Instamart, and Zepto. These competitors have capitalized on the quick commerce trend, while Dunzo struggled to scale operations beyond Bengaluru.

Since February 2024, Flipkart, valued at over $32 billion, has explored acquiring Dunzo. The talks face challenges due to Dunzo's complex ownership structure and significant ties with Reliance Retail, which holds a 26% stake.

Despite raising around $500 million, Dunzo is grappling with funding issues and competition from other players in the hyperlocal delivery market. Flipkart is cautious about proceeding with the acquisition and is awaiting Reliance's approval.

Dunzo’s previous attempts to find buyers, including discussions with Tata and Zomato, were dismissed as "hearsay." The startup’s financial troubles reflect the broader challenges faced by the hyperlocal delivery sector, where shifting consumer habits and intense competition have impacted profitability.

Despite substantial investments, including over $100 million in dark stores, Dunzo has faced difficulties in securing additional funding, with a recent attempt to raise $50 million in 2023.

Although Reliance has pulled back from its 90-minute delivery services through JioMart, it is reportedly planning to re-enter the instant delivery market.

Dunzo's future remains uncertain despite raising nearly $500 million in its lifetime, and the potential acquisition by Reliance or another player could determine whether it will capitalize on the evolving quick commerce landscape or continue to struggle with financial instability.

Dunzo's false assurance to employees

Shafid Abdulla, one of the former employees of Dunzo, told Education Post that “it has been over 14 months since Dunzo abruptly laid off more than 400 employees, and the company has yet to settle their full and final payments. The timeline of this issue is marked by deceit and negligence.”

“In January 2023, Dunzo began the layoffs, with around 80 employees being terminated. By April 2023, the company had let go of over 300 additional employees. At this point, the remaining staff faced salary delays and caps, with monthly payments reduced to ₹75K,” he added.

“The situation worsened in July 2023, when over 200 more employees were laid off. This round of layoffs was accompanied by a series of unpaid obligations, including TDS, salaries, PF, and NPS contributions,” Shafid continued.

“Furthermore, FORM-16 was not issued, and the company even suggested unethical methods for filing income tax returns. They promised that the full and final settlements would be processed by August 7, 2023, but this promise was not fulfilled,” he said.

Expressing his concerns, Shafid continued, “Since August 2023, the company has failed to keep their promises and deadlines and has been continuously pushing the date of FNF.”

“By June 2024, an email from the CEO claimed progress on settling dues, but this required employees to sign non-objection certificates (NOCs) to shield the company from legal action. The promise of immediate payment upon signing these documents proved false, as no payments were made,” he added.

“In July 2024, the promised payment date of July 15 was missed. During a scheduled call on July 20, where over 400 employees were muted, the CEO laughed off questions and offered no new deadlines, while claiming to be working hard on the issue from home, the ex-employee continued.

“Currently, over 400 employees remain unpaid, with unresolved government contributions for TDS, NPS, and PF. The absence of FORM-16 further complicates the filing of income tax returns, leaving many in a dire financial and bureaucratic situation,” a concerned Shafid said.

Another current employee told Education Post that “Dunzo has shown a troubling pattern of negligence and unresponsiveness towards its employees. Since mid-July 2024, employees have been requesting a group call or all-hands meeting with CEO Kabeer, who has been completely uncontactable since April 2024.”

Requesting anonymity, the employee further said that, “the company has failed to pay salaries since April 2024, with partial payments in June 2023 and no salary in July 2023. Employees' issues remain unacknowledged, leaving many struggling with loans and facing pressure from creditors.”

“TDS for FY 2023-2024 remains unpaid, preventing employees from filing their income tax returns. Additionally, the group term insurance has not been renewed since 2023, raising concerns about coverage in case of emergencies. The lack of communication and financial support has left employees in a precarious situation, enduring severe financial and personal stress,” she said.