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Singapore-based Zilingo is staring at an abyss as it looks to avoid the fate that has befallen thousands of VC-funded startups that have shut shop after promising so much. Sources close to the company have told Inc42 that Zilingo’s board of directors has authorised Cofounder and CTO Dhruv Kapoor to initiate repayment of loans demanded by creditors Indies Partners and Varde Partners with immediate effect. At the same time, investors, including Sequoia Capital India, are reportedly pushing for liquidation of the company.

The loans in question were the $40 Mn debt facility availed by Zilingo in 2019. However, soon after cofounder and CEO Ankiti Bose was suspended in March this year, the creditors had recalled these loans in their entirety. While Bose was said to be in talks with financiers to repay this loan and acquire the associated warrants to increase her stake in the company, her dismissal in May has put that on hold too.

Right now, with Bose no longer the CEO, Kapoor has been leading the company through this crisis, though in the past the company has clarified that he is not taking on the CEO role. The leadership vaccuum is a major problem for Zilingo at a time when it is in the awkward position of deciding whether to liquidate itself or pray for a rescue act from other investors, private equity firms or banks.

Zilingo’s Financial Quagmire

As seen in Zilingo’s latest audited financial performance for FY2019 (filed in November 2020), the company incurred a loss of $236.5 Mn. Net cash flow from operating activities was a negative $95 Mn, with a debt-to-equity ratio of -1.60 in 2019. And according to unaudited and undisclosed financials, which Inc42 has procured from sources in the company, Zilingo pulled back its losses in 2020 and 2021, but yet over the past three financial years (2019-2021), the cumulative loss for the company was over $430 Mn.

In addition to the heavy losses, Zilingo is also in the market for funds at a time when VCs are unlikely to bail out companies that have executional or operational challenges. Despite this, Zilingo has said that it is evaluating all options for the business, according to a Bloomberg report.

In the past couple of years, Zilingo has completely shed its burn-heavy B2C verticals and focussed on various B2B services and supply chain solutions, but will this narrower focus allow it to scale up rapidly and sustainably, or will the baggage of the losses of the past weigh heavily in the months to come?

The Liquidation Angle

As per sources who spoke to Inc42, Zilingo’s lead backer Sequoia Capital India (over 26% stake) and other investor Koru Partners (4.6%) are in favour of a liquidation. But neither Bose, who continues to be a board member, nor Kapoor want their company to be confined to history in this manner.

Zilingo’s long tail B2B marketplace business targetted at SMEs contributes most of the revenue for the company, while SaaS and the apparel sourcing verticals have the highest margins. Bose told The Ken earlier this week, that these verticals will be key to Zilingo bouncing back in the future, if at all the company remains active.

“I do not believe that liquidation is either necessary or meaningful for the interest of the company and its customers, shareholders, note holders and lenders,” Kapoor wrote in an email to shareholders as reported by Bloomberg. Inc42 could not independently verify this communication from Kapoor.

It is further claimed to have added that the company needs $6 Mn to $8 Mn for the next year, and that while right now it has “many multiples” of this amount, the debt situation could wipe off these reserves. Kapoor is also said to have added that Zilingo has been approached by companies expressing interest in a merger or acquisition.

Zilingo’s Murky M&A Prospects 

As we had seen in our look at the acquisition prospect for Zilingo in this market, any potential acquirer has to firstly pay off the debt of $40 Mn because of Zilingo’s lapse in repayments. Existing investors would also be looking to recoup a portion of the capital invested in Zilingo over the years, if not the whole amount.

To get a fair deal, Zilingo would have to prove that its tech platform works. In the past couple of years, the company has reduced its assets significantly by shedding the B2C vertical and focussing only on B2B.

However, our investigation into the company’s operations in April showed that the B2B tech platform was only solidified by the acquisition of nCinga in late 2019. As such it is still not completely ready to become the central part of Zilingo’s business. And without the audited financials, it’s hard to estimate just how valuable the B2B business is, in case the possibility of M&A arises.

Despite Kapoor’s assurances of steadying the ship with a bit of cash infusion, of late, several key employees at Zilingo have resigned including CFO Ramesh Bafna because of the company’s financial state. Besides this, the head of PR and communications Naushaba Salahuddin has also resigned from her post as well as the head of the Thailand operations. Over 100 employees are said to have quit the company since March this year.