The deal will value DesignCafe at about Rs 500 crore, or about $60 million, and HomeLane at $360 million, or about 3,000 crore, one of the sources said.
The development will bring about a consolidation in the home services industry amid a funding freeze in the technology industry over the past two years.
The two Bengaluru-based startups share a common investor in WestBridge Capital. While HomeLane has raised a total of $115 million since inception, DesignCafe has raised $30 million. The latter had last raised around $5 million from WestBridge Capital along with investment trust and venture debt fund Alteria Capital in March 2023.
DesignCafe had been struggling to raise a new round for several months, people cited above said.
“We cannot respond to speculation and rumours and this is unfortunately just that,” Srikanth Iyer, founder and CEO of HomeLane, said.
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Gita Ramanan, founder and CEO of DesignCafe, too, refused to comment on “market speculation and rumours”.WestBridge Capital did not respond to ET’s email query till press time Sunday.
After the merger, the firms aim to generate a combined earnings before interest, taxes, depreciation, and amortisation (Ebitda) of about Rs 70 crore by the financial year ended March 2025, people cited above said.
“DesignCafe is looking at the merger with long-term plans to sustain as a business,” one of the sources directly familiar with the development told ET. “As per current plans, post the merger, it is estimated to clock Rs 200 crore in revenue by FY25.”
Design Cafe is expected to continue to operate as an independent brand post the merger.
Even as the merger process has begun between HomeLane and DesignCafe, news reports have said HomeLane had been in talks to merge with KKR-backed Livspace. HomeLane had fired some employees in March year to cut costs.
Sources said both HomeLane and DesignCafe have been struggling to scale operations and the deal would complement both the entities amid the ongoing liquidity squeeze.
The combined entity may consider a public offering in about two years, they said.
While both the startups primarily focus on mid-to-premium segments, the two have also launched brands in the entry-level segment in the recent.
In 2022, DesignCafe launched Qarpentri and in 2023, HomeLane launched Doowup.
In June, HomeLane raised about $9 million from existing investors through convertible notes.