Fashion Startups Struggle, Return Investor Funds and Pivot Strategies

Two fashion startups in India, Virgio and Fashinza, are facing challenges and making significant changes to their business models. According to a recent report, both companies are struggling to maintain the initial plans they used to secure funding and are now in the process of returning a majority of the invested capital to their financial backers.

Failed Business Models Lead to Reevaluation

Neither Virgio nor Fashinza responded to inquiries about the situation. However, sources close to the matter suggest that the core business model of Fashinza, connecting fashion brands with suppliers through a B2B marketplace, proved ineffective. Additionally, Virgio’s pivot towards becoming a fast-fashion brand fell short of expectations, prompting their investor Accel to back a different player in the fast-fashion space (Newme).

Financial Details and Shifts in Strategy

Fashinza, a B2B marketplace for fashion supply chains, raised $100 million in May 2022 through a Series B funding round led by Prosus Ventures and WestBridge Capital. Existing investors like Accel, Elevation, and DisruptAD also participated.

Meanwhile, Virgio, a B2B2C fashion startup, secured $37 million in its Series A round in December 2022 from Prosus Ventures, Accel, and Alpha Wave.

Fashinza’s CEO, Pawan Gupta, confirmed to a publication that the company is returning capital to investors and plans to transition into a “manufacturing startup.” After settling these obligations, they aim to utilize the remaining funds to sustain operations for the next two years. Gupta explained that while the initial marketplace model held scalability potential, it wasn’t the optimal fit for the company. Consequently, the leadership team concluded that manufacturing presented a more suitable direction for Fashinza.

Recent Turmoil and Strategic Shifts

Both startups have encountered significant difficulties since their last funding rounds. Virgio, led by former Myntra CEO Amar Nagaram, underwent a major pivot in October 2023, shifting from fast fashion to a focus on sustainable fashion practices. Nagaram emphasized the environmental and ethical concerns associated with fast fashion and their commitment to building a “circular fashion brand” that minimizes waste and promotes responsible production.

Following this strategic change, Virgio implemented cost-cutting measures, including a workforce reduction of approximately 33%.

Fashinza Faces Internal Departures

Meanwhile, Fashinza experienced a different type of change with the departure of co-founder Jamil Ahmad. He left the company to pursue a new venture in the proptech (property technology) sector. His new startup, Marrfa, recently secured pre-seed funding from a Berlin-based venture capital firm.