Yet another startup resorts to layoffs, salary delays while waiting for spring

Arzooo hasn’t yet filed its FY23 financials.
Arzooo hasn’t yet filed its FY23 financials.

Summary

Retail-tech company Arzooo is the latest startup to delay payments to employees and sellers, as well resort to layoffs, while waiting for funding to come through even as the industry is hopeful that the funding winter may finally thaw this year

Retail-tech startup Arzooo has failed to pay salaries, blocked payments to its seller partners, and laid off a large number of employees since October amid an unrelenting funding crunch, according to multiple people aware of the developments.

Two employees said there had been no work for the past 60 days. “In an all-hands call, the management said the first priority for the company was to bring money to the table, but there hasn’t been any communication since then," one of them said.

The number of employees at the company has dropped from about 300 in January 2023 to about 100 in December, according to data research platform Crediwatch. Several laid-off employees told Mint that they hadn't received their pending salaries or final settlements. 

Some were paid their January salary in March while others were paid 70% of their January salary, according to employees Mint spoke with. All of them spoke on condition of anonymity. 

“February salary is pending and the company said they will clear all dues by April, but that seems unlikely as HR has stopped responding to mails. Everyone is looking out and moving if they find a good opportunity," said an employee.

According to current and former employees, the company has stopped depositing the tax it deducts at source since July 2023. An Arzooo employee's 26AS form, which provides details of the taxes deposited with the government, shows tax deducted at source entries by the company only until June.

Even as industry experts and investors believe that the funding winter for startups may thaw this year, several companies, not counting Byju's, are struggling to raise capital and have defaulted on payments to vendors and employees. 

Nanotechnology startup Log9 Materials and health-tech startup Red.Health have recently struggled with payment of dues on the back of liquidity concerns amid funding constraints. Dental-tech startup Dezy laid off nearly 200 employees and hadn't paid severance to several of them.

A spokesperson for Arzooo, responding to a detailed questionnaire from Mint, conceded that the company faced a cash crunch but had since raised money to run its operations.

“Due to the delay in planned fundraise, the company did have a phase where it dealt with a cash-tight situation, but with the recent infusions of capital from existing investors and upcoming investment, we are able to deal with it," the spokesperson said in an emailed reply without offering more details on the recent or upcoming investments.

“We’re now excited about starting FY25 as we complete our vertical integration, with the (business-to-business) and consumer businesses coming together. We aim to achieve profitability by the first half of the financial year," the spokesperson added.

Earlier this year, Arzooo announced it had raised an undisclosed sum in an extended Series B funding round. Last year, the company said it had secured $70 million at a valuation of about $310 million in a Series B round that had been announced in June 2022. Investors included SBI investment, 3 Lines and Trifecta. 

But even as the company announced the fundraise, it hadn’t paid its stakeholders or communicated the development to its employees and customers, according to several current and former employees. The $70 million was supposed to come in tranches. A part of it was to come in late last year, but did not, leading to a funding crunch, they said.

Arzooo's loss in FY22 surged to 63 crore from 18 crore in the year before, although its revenue improved to 1,117 crore from 259 crore, according to data from Tofler. The company hasn’t yet filed its FY23 financials.

Founded in 2018 by former Flipkart executives Khushnud Khan and Rishi Raj Rathore, Arzooo offers a digital platform for companies to sell consumer durables and electronics to retailers. It also launched a fintech service last year. 

But while buyers continue placing orders, sellers haven’t been delivering them as the company has blocked their payments, according to people Mint spoke with. 

A vendor Mint spoke with said Arzooo had blocked his payments since November and owed him 7-8 lakh. While the company has collected payments from buyers for completed orders it hasn't paid the sellers on the platform, this vendor said, declining to be identified.

“Customers' orders are stuck and I am getting calls from them saying their money is not being refunded either," said an employee.

Retail investors who invested in the company through its invoice discounting channel haven’t received their payments either, according to one such investor Mint spoke with. 

Vendors in invoice discounting lend to companies, particularly startups and small and medium enterprises, to ease a company's working-capital requirements.

 

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