B2B e-commerce start-up Udaan has secured fresh funding worth $120 million through a convertible note from existing investors and bondholders, according to an internal email sent to employees by its chief financial officer Aditya Pande. FE has reviewed the copy of the mail sent to employees on Thursday.

A person aware of the fundraise told FE that Udaan was valued at around $3.2 billion in this funding round. With this round, the total funds raised by Udaan through convertible notes and debt in the last four quarters have crossed $350Mn including the $200 secured via convertible notes in January 2022, and a $50 million debt from undisclosed investors in the last quarter of CY21.

A convertible note is a fundraising instrument that allows companies to raise structured debt which they can convert to equity shareholding for investors in a later timeline. Typically start-ups raise convertible notes when they prepare for an IPO; rather than paying back the loan with interest, investors get to keep preference shares post the listing.

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Udaan’s overall debt funding is one of the largest structured instrument fundraises in the Indian startup ecosystem, especially during a drastic funding winter. Recent data from analysts showed that growth and late-stage deals volumes declined by a record 75% and 72%, respectively, in Q3CY22 compared to the first quarter of the calendar year (Q1CY22). Hence, few high-growth start-ups have turned to debt funding as a method to finance working capital adn other operational expenses.

“Despite the funding-related challenges being experienced by the larger start-up ecosystem, this fund raise reflects the confidence of investors in our business model and their endorsement of the journey to unit economics, driven by great progress in evolution of our business model and cost efficiency, that we initiated last year,” Udaan CFO Pande said in his internal email.

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He further added that Udaan achieved “positive unit economics” in the last quarter while keeping on track to be IPO-ready within 12-18 months. Pande’s email further claimed that Udaan’s unit economics improved by around 1000bps with “strong improvements” in both gross margins and operating cost along with a 60 reduction in cash burn

“Continued focus on customer-first thinking & initiatives on strengthening our value proposition for them have resulted in monthly buyer repeat rates increasing by 500+bps in the last 2 quarters,” the email added.

Udaan reported revenues of Rs 5,919 crore in FY21 which is a 6-fold growth compared to revenue of Rs 978 crore reported in FY20, according to the company’s FY21 financials available with RoC. It also narrowed losses to Rs 2,482 crore in FY21 against a net loss of Rs 2,519 crore in FY20. Its total expenses, however, doubled to Rs 8,742 crore in FY21 from Rs 3,675 crore.

Apart from the large debt fundraisers, Udaan had also raised another $280 million in financing in its Series D equity funding round in January 2021 from investors like Octahedron Capital and Moonstone Capital and previous investors Lightspeed, DST Global, GGV Capital, Altimeter and Tencent. To date, the start-up has secured close to $1.6 billion in funding from multiple investors including the current round.

Bengaluru-based Udaan was founded in 2016 by former Flipkart executive Amod Malviya, Sujeet Kumar and Vaibhav Gupta. In September last year, Udaan had announced key managerial rejigs in which Gupta was elevated as CEO and the two other co-founders Malviya and Kumar were also appointed as board members.

In 2018, Udaan was the fastest start-up to earn the coveted unicorn status when it completed its Series C round worth $225 million. It currently sells merchandise to retail and other offline outlets across lifestyle, electronics, home & kitchen, staples, fruits and vegetables, FMCG, pharma, toys and general merchandise.

Recently the start-up also revealed plans to tie up with 400 brands and to grow its FMCG division which the company said will account for about 25% of the firm’s total revenue over the next year up from the current 20%. It claims to have about 1,000 stock-keeping units available in every city for its retail partners. The start-up currency has three million registered users, or retailers, who purchase in bulk from Udaan to resell from their kirana shops.

Udaan competes with other B2B e-commerce start-ups such as Flipkart-backed Ninjacart which offers fresh produce to stores and businesses, Infra.market which operates a B2B marketplace construction materials, and 1K Kirana Bazaar which is taking the franchisee route to supply products to Kiranas.