B2B fashion startup Fashinza struggles to find its footing, bogged down by top-level exits

The startup has reduced its monthly cash-burn from around Rs 8-9 crore at its peak to around Rs 2.5 crore now, sources told Moneycontrol.

B2B fashion startup Fashinza was off to a great start when it began operations in 2020. It raised $75 million from marquee investors such as Accel, Prosus, WestBridge, and Elevation, and grew its gross merchandise value (GMV) to $50 million in about two years. From there, it’s been downhill. The company’s GMV dropped to $40 million and has stagnated there for the past 18 months at least; it has lost several key executives and has fired half its workforce in its short run.

The latest executive on the way out is chief financial officer (CFO) Jatin Mazalcar, who is set to exit the company by March after a one-and-a-half year stint with the startup. Prior to his Fashinza stint, Mazalcar had been the CFO at companies such as Meesho and Goibibo.

While Mazalcar is contemplating to start up on his own, he is also open to CFO roles in other companies, Moneycontrol has learnt. Earlier this month, Fashinza’s co-founder and chief business officer (CBO), Jamil Ahmad, also said he was leaving the company after spending four years at the startup.

Ahmad was not associated with the company when it started, but was roped in later and eventually made a co-founder. His ownership in the company is also low. Abhishek Sharma and Pawan Gupta, the founders, together hold around 40 percent in Fashinza, while Ahmad has a stake of less than 1 percent in the company. Gupta, the CEO, dismissed allegations of Ahmad exiting because the company didn’t require a third co-founder at this stage.

Several senior executives leaving in droves has only added to Fashinza’s troubles at a time when it is looking to find the right product-market fit (PMF) and attract the right customer base.

Three models in three years

Fashinza brings together buyers and sellers and helps in end-to-end apparel manufacturing. In search of its product-market fit (PMF), Fashinza has changed its organisational structure at least two times and is on its third model now in three years.

The company had started by having category heads who ran individual teams that were responsible to grow each division, but that model did not yield results. It then rejigged teams and said it would have regional heads and said they would be responsible for the growth of the area they had been handed. However, that model failed, too.

The dwindling headcount is thanks to its ever-changing organisational structure. The company has roughly 100-120 employees now, down from the 250 people that it had on its payroll around mid-2022, sources said.

After two failed models and at least three rounds of layoffs in about six-seven months, Fashinza has now divided its teams into two units: sales and final delivery. Co-founder and chief executive officer (CEO) Pawan Gupta admitted the business has flatlined.

Fashinza gets 50 percent of its business from the US, and the rest from India, Europe and the Middle East. It competes directly with Tiger Global-backed Geniemode, which is smaller in scale, as per FY22 revenue numbers, the latest available comparable data. B2B apparel manufacturing is a difficult market to operate in, per Gupta. “In B2B, at every margin profile there is a different type of customer. Simply put, in B2B, a company’s product market fit (PMF) changes everytime we alter the margin profile,” CEO Gupta said in response to Moneycontrol’s queries.

“Even we were tired of changing our model two-three times. We soon realised that our scale did not need so many senior-level people. We had hired thinking we’ll grow 200 percent but … the growth rate was then adjusted to 10-20 percent,” Gupta added.

Senior departures

When business was at its peak in mid 2022, Fashinza had 25-30 senior executives. Now, just three to five executives from that level still remain with the company, Moneycontrol has learnt. Several managerial roles were also eliminated because Fashinza tweaked its business model time and again. With every change, the company found that at least one layer of management can be done away with.

“We simply could not afford senior executives after a point. Does my company need expensive senior-level people? Yes. But, does my company deserve senior level employees? No. Our margins and GMV simply do not allow us to have expensive employees at the top anymore,” Gupta said.

To be sure, while Gupta admitted that GMV has flatlined for the last 18 months, he said Fashinza’s margins have doubled during the same period because the Gurugram-based company was now working with better-quality customers. In the process, Gupta said that Fashinza has managed to weed out unprofitable customers who went rogue after placing orders or had a high cancellation and return rate.

While Gupta did not comment on Fashinza’s margins, he said the industry standard is around 15-16 percent and his company is working on getting close to that range.

“Our GMV has remained flat but our margins have doubled from mid 2022. During the pandemic years, everyone focused on growing GMVs, so even we chased that to raise capital and thought we have to only improve margins later. Back then, we thought GMV was everything but are fixing that now,” Gupta said.

Funding

Fashinza has raised $75 million in exchange for equity so far and has other debt lines, of around $10 million, from Alteria Capital, Stride Ventures, Singapore-based Liquidity Group and others. The debt component varies as the company keeps raising and paying off money from time to time.

In May 2022, Fashinza raised $60 million in exchange for equity at a post-money valuation of $300 million. At the same time, it also secured $40 million in debt. Fashinza has favoured debt over equity for a while now, much like other startups that have borrowed money to protect their company’s valuation. Last March, Fashinza again secured $30 million in debt from Mars Growth Capital and Liquidity Group.

“We raised debt to be able to delay the next fundraise. It’s always easier to close debt lines, even if you don’t draw them at that time, while raising equity,” Gupta told Moneycontrol in response to questions.

Fashinza’s next round, a Series C, is still some time away as the need for capital is not urgent, according to Gupta. The startup has reduced its monthly cash-burn from around Rs 8-9 crore at its peak to around Rs 2.5 crore now, two people aware of the developments at the company told Moneycontrol. Gupta confirmed these numbers.

“Our margins have grown so that has helped us. Also, all travel requests were earlier approved by managers, but now I personally approve each employee’s travel request. We’ve also moved into a smaller office space to cut costs,” Gupta said in response to queries.