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Dunzo’s in no
man’s land
Harveen Ahluwalia
Mumbai

Pradip K. Saha
Delhi
July,

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Dunzo seems to once again be in the throes of a cash crunch. This week, news came that the hyperlocal delivery startup has
deferred salaries of some employees for the month of June. It capped organization-wide salaries at Rs , and has
assured that the rest will be paid by July. Throughout the week, there have been multiple stories on the quantum of unpaid
salaries as well as employees affected, but the startup has stayed quiet.

Hiccups at the Bengaluru-based Dunzo are nothing new. This year alone, the startup has laid off people, seen a funding
crunch, dealt with some unpaid vendors as well as restructured its operations. In its core business, Dunzo made a U-turn in
February. We had reported the change here.

But despite all the action so far, the developments at Dunzo this week are still quite surprising. There are a couple of things
to unpack here. For one, if the funding stories are anything to go by, Dunzo shouldn’t really be in a cash-crunch situation. In
April, according to a report in The Economic Times, the company had secured $ million through convertible notes from its
existing investors; the majority of this infusion was from Reliance Retail and Google. The fundraise has been repeatedly
quoted in news stories since.

It is unlikely that Dunzo has already burnt through all that money. For the year ended March , Dunzo’s revenue from
operations came in at Rs crore, while its loss was at Rs crore. While the startup did experiment with expansion after
raising around $ million (most of it from Reliance Retail) in January , its expenses have largely been reined in now.
For at least six months, the company has been in a cost-conserving mode with layoffs, restructuring and cutting down on
discounts.

The only explanation for delayed salaries then is that there is an issue with the last reported fundraise. Either the entire
amount hasn’t landed yet or, worse, isn’t going to. From what I am hearing, the full amount hasn’t come so far. The
Ministry of Corporate Affairs portal isn’t reflecting any filing by Dunzo in connection with a fundraise this year, possibly
because the portal itself is plagued with glitches. And the company is of course tight-lipped, as always.

In either case though, this hiccup is bad news for Dunzo and reflects poorly on the financial stability of the company. It has
already lost many employees and, in such a scenario, is bound to lose more talent, which brings me to my second point.

For a while now, there has been way too much uncertainty around the future of Dunzo. When Reliance Retail invested in the
startup and became its largest shareholder, it was assumed that Dunzo was essentially going to be a Reliance company. The
startup has also been working as a JioMart partner, but without any impressive results. From our older piece:
 “When Reliance invested, one big mandate was that we have to help them out with JioMart deliveries because JioMart
has a decent interface but they were lacking in the delivery experience. We were expecting orders to grow x in a year;
that hasn’t happened with JioMart. If that had happened, B B would have contributed % to the business,” says the
fourth former employee.

At the time, we had written that Reliance was somewhat disenchanted with Dunzo and worried about its burn, but it now
seems that the conglomerate isn’t particularly bothered by the outcome or profitability of Dunzo at all. A person close to the
developments at Reliance says the purpose of the conglomerate’s investments in startups (read: Dunzo or Netmeds) was to
gather insights on the market and that has already happened. It was also to integrate these services into the Reliance
ecosystem and gauge the response. Eventually, all these investments were to be operated as Reliance’s own businesses and
not as independent entities. Plus, given that it has already invested upwards of $ million in Dunzo, it isn’t keen to go
above and beyond. The person cited above adds, “Dunzo is in no man’s land here,” which means that nobody at Reliance is
paying much attention to the startup at the moment.

The speculation then is that Reliance’s silence simply means that it is waiting. The conglomerate has a well-documented
history of distressed acquisitions (read: Milkbasket, Urban Ladder) and is sitting tight until Dunzo runs out of options.
Reliance can then scoop it up.

In a way, the last reported fundraise was perhaps Dunzo’s final chance to get its operations in order. If the money comes
through, it means there is still hope. Dunzo needs the funds to achieve its internal profitability targets. But if the money
doesn’t come, there aren’t many options left. Any new fundraising is going to be a tall order for Dunzo. With Reliance on the
cap table, a possible merger or acquisition is also going to be complicated.

Last year, Dunzo’s financial statement had said that there was significant uncertainty on whether the company could keep
going. The company management had, however, clarified that its projected revenue growth and some new funding would
mitigate this uncertainty. With all that has happened this year, things have only worsened for Dunzo. That it is eventually
going to find a home in Reliance is virtually a fait accompli; the question is at what price.

Over to Pradip.

Byju’s in damage-control mode?

Byju’s is in the news, yet again. I know what you are thinking, but wait. This is probably the only time in the last few months
that the company has made headlines for something that could be a step in the right direction. Well, at least on paper.

On Thursday, Byju’s formed an advisory council to its board with T.V. Mohandas Pai and Rajnish Kumar as members. Pai is
the former chief financial officer of Infosys and an early investor in the Bengaluru-based edtech company through his
private equity fund Aarin Capital. Kumar is the current chairperson at BharatPe and a former head of the State Bank of India.

Byju’s said in a press release that the two appointments are aimed at “enhancing its financial governance mechanisms and
leveraging expert advice to drive sustainable growth and strategic decision-making”.

“This council will play a pivotal role in advising and mentoring Byju’s board and its CEO, Byju Raveendran, on crucial
matters that shape the company's future,” the release read.
The company had announced the likely formation of the advisory council during an emergency general meeting held last
week in the aftermath of the backlash it faced on corporate governance issues.

As I said at the start, the move could help the company restore a measure of credibility. Kumar and Pai may eventually end up
joining the company’s board, which only has the three co-founders now. But the question is why now?

As an early investor, Pai has had a ringside view of the meteoric rise and dramatic fall of India’s largest education technology
company. The day after the auditor and three prominent board members resigned, Pai had said the company had not paid
enough attention to governance and called for better measures. Kumar, like we have written before, has presided over the
cleanup at BharatPe. Before that, he saw SBI through a grand merger with several of its siblings, the the crisis at Yes Bank
and the onset of the pandemic. Three years after his retirement from SBI, he is on the board of HSBC Asia and Hero
MotoCorp, and an adviser to several other top companies. He brings access to banks, the finance ministry and perhaps even
the Ministry of Corporate Affairs. One would hope the two veterans of corporate India will push for better governance. At the
same time, like several instances in the past, this could be yet another cosmetic change at the company, meant to repair
public relations after consistent bad press over the last few months.

“It is very difficult to say anything at this point,” says a person in the know, requesting anonymity. “Pai has better visibility
than Rajnish. If he brings in money then certainly it will be on certain conditions, in which case his advice would be taken
seriously. Otherwise, it is just another PR stunt as Byju is known to say yes to everything and then do nothing.”

Here is another question. Is this move a case of too little too late?

Cover image from Getty Images.

Byju
Byju Raveendran
Reliance Retail
Dunzo
Rajnish Kumar
Mohandas Pai
Byju's
edtech
Kabir Biswas
instant commerce
hyperlocal delivery
advisory council
cash crunch
Disclaimers: The Morning Context has raised money from a clutch of investors, entirely in their personal capacity.
It is quite likely that some of them may be directly or indirectly involved in a competing line of business similar to
the companies we write about. Our full list of investors is here

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