Dunzo Faces Financial Crisis as Insolvency Proceedings Begin

Startup Dunzo, which delivers goods online, needs help with financial problems. A noteworthy development is that Invoice Discounters of Dunzo Digital, one of its creditors, has filed for bankruptcy against the business. An application under the Insolvency and Bankruptcy Code (IBC) was submitted to the National Company Law Tribunal (NCLT) to take this action.

Investors with a high profile and partial repayment are in the middle of financial difficulties.

Dunzo has paid Invoice Discounters in part, but the remaining balance is still unknown. Despite significant investments from well-known supporters like Google and Reliance Retail, the e-commerce delivery business is encountering serious financial problems. The Insolvency and Bankruptcy Code (IBC) filing for insolvency may hurt the business's operations and long-term existence.

Dunzo gave up the opportunity to respond.

An NCLT judgement dated 29 May states that while settlement negotiations were in progress, both parties had requested additional time. The bench had stipulated that Dunzo would have to respond to the insolvency petition within two weeks if a settlement was not reached.

On 19 June, however, Invoice Discounters informed the tribunal that the settlement negotiations had broken down. The panel then declared that Dunzo could no longer submit a reply. In February, Dunzo was also served with an application for insolvency by Betterplace, one of its operational creditors. It also withheld the precise amount on which the business had defaulted.

The liquidity crisis of Dunzo

Due to financial difficulty, Dunzo has had to alter its business plans, postpone paying vendors and employees, and cut staff throughout the last 12 months. The quick commerce sector has become highly competitive with players like Swiggy Instamart, Zomato Blinkit, and Tata's BigBasket. The industry demands significant technological, logistics, and marketing investments to gain market share, leading to high burn rates. Dunzo is inherently challenging due to low average order values and high delivery costs. Ensuring a consistent supply of products at competitive prices can take time and effort, affecting customer satisfaction and profitability. Their aggressive expansion without careful financial planning led to overspending. The shift to profitability can be challenging, especially in a highly competitive market. Securing additional funding in a tightening investment climate takes time and effort. On the other hand, high valuations and aggressive growth targets create pressure to deliver results quickly.

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