Dunzo eyes up to $300 mn to fund quick commerce biz

Dunzo is likely to work with Morgan Stanley for the fundraise, the process for which may begin in April.

According to Biswas, the company expects to dilute about 10-15% of its shares in this round. However, he did not disclose any valuation figure given the volatile state of the market. “In the previous round, we didn’t optimize for valuation. We optimized for the right partner," Biswas said, noting the company had received other offers that valued Dunzo at over $1.2 billion also at the point.

Eventually, Dunzo raised $240 million from Reliance Retail Ventures Ltd and other investors such as Lightbox, Lightrock and others, in a deal that also included secondary share sale, at a post-money “conservative" valuation of $800 million earlier in January 2022. “I think the valuations are getting reset as we speak," Biswas said, adding he expects the markets to settle down over the next few months, after which Dunzo will hit the market to raise capital.

Reliance Retail acquired a 25.4% stake in January. Dunzo’s other shareholders include Google while the Dunzo cofounders and management team own around 20% of the company. The company has around $200 million in the bank as cash reserves. It expects to do another pre-IPO round – possibly a $500 million round -- before it goes public eventually in 2024, Biswas said.

Dunzo was earlier planning a 2023 IPO, but it is allowing for some more time for its quick commerce business to mature before going public.

The quick commerce category is getting built over the next two or three years, Biswas said, and companies have to make a choice whether they want to be part of it or not..

“There is a macro shift that is happening where consumers are wanting to bring their daily and weekly commodities purchases in a much more convenient manner. The best way to achieve that with the best unit economics is by rolling out dark stores. We have rolled this out in three cities – Bangalore, Chennai and Pune. We are rolling out dark stores in Mumbai next week and will be rolling out our dark stores in National Capital Region a week later," he said. Around 25 Dunzo dark stores will go live in Mumbai next week, Biswas said.

The company is aiming for 15-20 minutes delivery time on its orders. “Nearly 85% of our orders are delivered within 15 minutes," Biswas said. He added, “I don’t understand how this 10-minute delivery works. Even before this rage (10-minute rage) started, we were delivering within 22 minutes or half an hour. We have been consistent on the fact that there doesn’t appear to be too much difference in retention between 10 minutes and 20 minutes. And 20 minutes is what we are indexing for," he said.

Dunzo is currently hitting an annual run rate of ₹1,500 crore ($197 million) for its current gross margin value (GMV) is around ₹1,500 crore ($197.3 million). The company did a gross merchandise value of ₹1000 crore January to December 2021. “We would like to be hitting a gross merchandise value of around $2.5 billion before we go public," Biswas said.

Dunzo currently does around 200,000 orders a day, out of which about half is serviced through its dark stores or warehouses which forms the backbone for its quick commerce delivery service.

Dunzo is also exploring adding new verticals for items that its quick commerce business can deliver. It is exploring ways to deliver medicine and alcohol subject to licensing requirements. It also expects gifting to become a key area for growth. “Gifting may include flowers or books .. there are multiple categories within gifting that people want to send quickly. Given the size of the market, we also expect basic electronics and accessory store items to go dark. India also has a lot of festivals – so the selection for those also we expect to show up in our stores," Biswas said. It expects advertising to be a key revenue source in the future.

In addition to its quick commerce business, which is the company’s focus for the next 18 months, the company also has a peer-to-peer courier and delivery business, which serves both business to business users and consumer to consumer users. It has 75,000 delivery executives for this vertical. It also offers a network of other retail stores – such as Nature’s Basket on its app as a convenience for customers. The courier business and the marketplace are both making money on a unit economics business, Biswas said. The company did not reveal its exact revenue numbers. But Biswas said that Dunzo is currently burning around $7 million to $8 million each month. This burn rate is likely to taper off, once its current expansion plan meets its objectives .It expects to hit profitability closer to 2024, ahead of going public, Biswas said.