An company that’s hugely popular among customers might not always find the love among the investment community.
Dunzo, a Bangalore-based app that lets people order services online is struggling to raise additional funding, its investor has said. “Sad state of series A market that this incredible consumer delight Dunzo not recognized for what it is/can be,” bemoaned Karthik Reddy, cofounder and Managing Partner at Blume Ventures, which had invested in the app in 2015. He added that investors were giving “thanda excuses” while not funding Dunzo’s Series A.
— Karthik Reddy (@BKartRed) August 5, 2017
It’s not everyday that an investor is this forthcoming about their company’s struggles. Dunzo had been founded in 2015 and raised around Rs. 4 crore to provide concierge services around Bangalore. While a multitude of apps catered to specific needs, like plumbing, house cleaning or electricians on demand, Dunzo said it would do virtually anything — so users could ask Dunzo’s executives to get them cigarettes at night, bring over forgotten shoes from friends’ places, and even visit the supermarket to fetch one hard-to-find ingredient.
Customers lapped it up. Purely driven by word of mouth, Dunzo became hugely popular among the tech community in Bangalore. The company began punching far above its weight — with only Rs. 4 crore raised, it managed to turn a plethora of well-heeled, tech savvy customers into loyal users.
Investors aren’t impressed
All this goodwill doesn’t seem to have impressed Series A investors, who seem hesitant into putting more money into the company. It’s possible that investors fear that Dunzo’s freewheeling business model will make it hard for the company to make profits. While other companies have fixed supply chains (of plumbers, electricians, and the like), Dunzo’s USP is to deliver whatever its customers want. This makes it hard for the company to achieve economies of scale — each order is unique, and requires a unique solution.
While Dunzo has been tying up with merchants it regularly contacts, it still requires that its riders are better trained than the average service professional. To execute complex tasks (someone once wanted to print HRA documents), Dunzo needs to pay its professionals higher salaries than other service providers — Dunzo riders make between Rs. 1200 – 1400 per day. Even if a rider completes 10 orders a day, that’s Rs. 120-140 in simply executive costs per order. Dunzo charges customers between Rs. 30 and Rs. 100, which means it loses money each time a customer orders its services.
Dunzo had planned to optimize its deliveries and ordering mechanisms through advanced Artificial Intelligence and Machine Learning, but when we’d spoken to a Dunzo representative in July last year, none of these techniques had yet been implemented. It’ll also be hard for Dunzo to raise prices; it’s alright for customers to pay Dunzo Rs. 50 to deliver Rs. 50 can of water late at night, but even if Dunzo wants to just break even, customers might be a lot more reluctant to pay Rs. 150 to have the same can delivered.
And ultimately, the market for Dunzo might be vanishingly small. It’s only the upwardly mobile young customers who’ll both have the deep pockets and the paucity of time to value Dunzo’s services. Moneyed Indians often have full-time servants who do what Dunzo’s represenatives do; slightly less well off Indians would rather do it themselves.
But there’s no denying the customer delight that Dunzo has brought to its loyal users. “And, can you believe, they charged me just Rs.95 as the delivery charge for this entire task? Even the cab from my place to his place takes 350 one way!,” gushed a happy user who’d asked Dunzo to deliver a birthday cake and flowers to a friend at 12 am. While the customer is undeniably pleased, charging just Rs. 95 to deliver a service that could cost upwards of Rs. 700 is something that’s unlikely to thrill investors.