Reliance Retail-backed Dunzo is in talks to raise up to $100 million (Rs 825 crore) through convertible notes, people aware of the matter said, joining a growing list of startups which have tapped alternate funding routes to preserve their valuations. Dunzo is primarily raising this capital to expand its quick commerce service, Dunzo Daily, people in the know said.

The round is in advanced stages of closure and could finally settle in the range of $70-100 million, the people said. The Bengaluru-based startup was initially looking to raise at least $150 million by selling a stake but its decision to opt for convertible notes underscores the ongoing funding winter for large startups which need capital to sustain their businesses. “It will settle closer to $100 million but definitely not anywhere closer to $150 million,” said one of the people familiar with the discussions.

Raising funds through convertible notes, a popular instrument now among growth- to late-stage startups, will allow Dunzo to not ascribe itself a valuation immediately when investors are being cautious. The quick-commerce model, where platforms promise grocery delivery within 15-30 minutes, has seen a sharp reversal of sentiment from investors in India and globally amid the liquidity squeeze.

For Dunzo, which was last valued at around $775 million in January 2022, its largest investor Reliance Retail is likely to cut a relatively smaller cheque in this round than last time, people briefed on the matter said. The Abu Dhabi Investment Authority (ADIA) is among new investors who are likely to join this round. The sovereign wealth fund is an investor in Reliance's Jio Platforms. Sources said Dunzo had held talks also with Singapore’s Temasek as well, but those seem to have fallen through.

“Most late-stage startups are raising capital through instruments that don’t impact their valuation amid a tightening funding environment,” said the person quoted earlier. “They (Dunzo) are still trying to bring one or two more external investors to join the round.”

“The due diligence has also now closed for this round which was done by one of the Big Four (accounting) firms,” another person said. Dunzo chief executive Kabeer Biswas and a spokesperson for ADIA declined to comment. Emails sent to Reliance Retail and Temasek didn’t elicit any response till press time Thursday. Reliance Retail owns 25.8% in Dunzo. Google is another major investor, with a stake of just under 20%.

Venture funding for startups in 2022 fell around 30% to nearly $24 billion, according to data from industry tracker Venture Intelligence. Nearly 64% of the respondents to State of Startups survey, as reported on December 30, had said they expected an improvement in funding scenario only by the second half of 2023, while more than 21% said it could even get worse in 2023 compared with the year before.