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Zilingo founders join hands, make buyout offer as B2B startup teeters on edge of liquidation

According to the letter, the new investor will be infusing $8 million in equity in tranches. The offer further stated that pursuant to Singapore's Insolvency, Restructuring, and Dissolution Act, Zilingo will be transferred to the ownership of a newly incorporated entity.

June 19, 2022 / 06:54 PM IST
Ankiti Bose (Image: @ankitibose/Instagram)

Ankiti Bose (Image: @ankitibose/Instagram)

Zilingo founders Ankiti Bose and Dhruv Kapoor have joined hands to make a management buyout offer of the company as the Singapore-based business-to-business (B2B) e-commerce startup is staring at voluntary liquidation, according to sources aware of the matter.

"Given the potential of the business and the value you know this company can achieve, I urge you to consider the management buyout offer as a preferred alternative to voluntary liquidation," Dhruv Kapoor, Zilingo's co-founder and chief technology officer, told the Board of Directors of Zilingo, in a mail, a copy of which was viewed by Moneycontrol.

"I make this offer on the basis of firm investor commitments and having appointed legal and financial advisers in respect of the management buyout offer," Kapoor added.

According to the letter, the new investor will be infusing $8 million in equity in tranches. The offer further stated that pursuant to Singapore's Insolvency, Restructuring, and Dissolution Act, Zilingo will be transferred to the ownership of a newly incorporated entity.

Bose endorsed Kapoor's offer in a mail to shareholders, a copy of which was seen by Moneycontrol.

"I would like to encourage all interested parties to engage alongside the management and founder group and the new investor group to support this initiative," Bose said.

A spokesperson for Zilingo said, "an independent financial advisor was appointed by the Company which is in the midst of assessing options for the business. More information will be provided in due course."

Sequoia Capital, which owns 26.5 percent in Zilingo declined to comment on the story.

"As founders, it is our ultimate responsibility to make sure that we do whatever it takes to make sure the lights stay on at Zilingo and in the homes of the hundreds of people who are part of it," said Ankiti Bose, when contacted by Moneycontrol.

"No matter what our differences may be, at the end of the day we started this company with the same goal. Today we have come together to fight for that same goal," Bose added.

What the offer says

Kapoor's offer stated that Zilingo's subsidiaries, assets, debt obligations, contracts and key employees of verticals including Z Factory, Z Sourcing, Z Connect or Z Digitize, Z Trade and Z Spotlight will be bought out by the new company.

According to the offer, there will be a 36-month moratorium on the repayment of the debt by the new company and repayments will happen in four quarterly installments after the moratorium. Lenders will remain senior in priority, the offer statement said.

The new investor group is willing to negotiate grant of equity in the proposed new entity to existing shareholders of Zilingo on a mutually agreed basis, according to the offer.

The offer also proposed a new five-year business plan for Zilingo, which needs to be agreed upon among the investor group, the new proposed entity and existing shareholders of Zilingo.

Confirmatory due diligence should be completed in seven calendar days if and once the management buyout offer is accepted, the investor group said in the offer.

Letting bygones be bygones

Ankiti Bose and Dhruv Kapoor, the two celebrated founders of Zilingo, had differences, since December 2019, much before the Singapore-based startup was caught in midst of corporate governance issues. According to a source aware of the matter, Bose and Kapoor were not on the same page, when it came to the acquisition of nCinga Innovations, a Sri Lanka-based software-as-a-service (SaaS) logistics company. Zilingo had acquired the company for $15.5 million.

Bose and Kapoor also differed on many other business decisions according to sources and the two were never really close even as they started the company together, seven years back. According to the Yourstory report, employees of Zilingo had formed two teams as half supported Bose while the rest supported Kapoor.

Management buyout offer rings a bell?

Management buyback often happens at a fraction of the company's latest valuation as it offers investors to write off their investment instead of dealing with a legal battle.

For instance, in 2019, one of India's oldest e-commerce platforms, Snapdeal, founded and run by Kunal Bahl and Rohit Bansal,  had bought back 10 percent of Snapdeal's shares at a valuation below $100 million.

The SoftBank-backed company was once valued at $2.4 billion at its peak and had entered the coveted unicorn club in October 2014.

Snapdeal is now looking to raise Rs 1,250 crore through public listing. The e-commerce company, which counts Foxconn, Sequoia Capital and Ontario Teacher’s Pension Plan Board, among others on its board, filed draft papers with the Securities and Exchange Board of India in December last year, but is yet to receive the regulator's nod.

What's happening with Zilingo

In March, Ankiti Bose, co-founder and chief executive officer of Zilingo, was told about 'severe' accounting irregularities and mismanagement at Zilingo as the Singapore-based B2B e-commerce startup was looking to raise fresh funds. Investigation and risk consulting firm Kroll also quizzed Bose.

Zilingo, eventually, suspended Bose due to the alleged financial irregularities. However, Bose's suspension was supposed to last only until May 5.

The financial irregularities also hurt Zilingo's fundraise plans. The startup was looking to raise $150-$200 million at unicorn valuation. Shailendra Singh, of Sequoia Capital, resigned from Zilingo's board, a couple of days after the news of Bose's suspension from Zilingo broke in April.

A few days after Singh's resignation, multiple media reports alleged that Bose’s suspension had more to do with silencing her complaints of sexual harassment against colleagues and not just accounting issues. Zilingo, then in May,  issued an on-record statement formally acknowleding that its board suspended Bose on March 31.

Zilingo's board also expressed disappointment over the reports that alleged Bose's suspension was retribution for filing complaints against the management on sexual harassment allegations.

The board also claimed that Bose talked about sexual harassment-related allegations only after she was suspended on March 31 and said that Zilingo's board jointly decided to suspend her and it wasn't a decision of a 'big individual investor.'

A few days later in mid-May, Zilingo's creditors opted to recall their entire loan as Zilingo failed to fulfill earlier obligations under its loan agreement. The B2B e-commerce company hired financial counsel to deal with the default.

Reportedly, Bose considered recompensing Zilingo's entire outstanding debt, which will help her to increase her stake in Zilingo Bose sent a term sheet to creditors after talking to institutions and hedge funds to raise $40 mn to buy back the warrants and pay the balance principal amount.

However, on May 20, Zilingo's board officially fired Bose.

In a social media post, Bose said, "I was suspended on the basis that the company had instructed Kroll to investigate the complaint. I have neither seen the Kroll nor Deloitte reports and not been given sufficient time to produce any documents requested by them."

Correction: Moneycontrol has removed paragraphs that alleged one of nCinga's employees harassing Ankiti Bose after nCinga reached out to the publication, issuing a clarification. The founder of nCinga Martin Strommer said--'The harassment claims are factually incorrect and defamatory in nature.'

Chandra R Srikanth
Chandra R Srikanth is Editor- Tech, Startups, and New Economy
Nikhil Patwardhan
Nikhil Patwardhan