In last few months, VC-backed Indian startup companies have finally come face to face with harsh realities of the startup world.
The exponential growth, they claimed while taking funds from VCs had made way for a negative growth.
Some had to scale down operations. Others had to shut shop.
In a world where terms like GMV had made way for Profits, the inevitable had to happen.
VCs had started asking the tough question “Show me the money?”.
The indianentrepreneurs, who till now made the world take notice of their achievements are now coming across as immature startup owners who ran after money without understanding the dynamics of running a business.
It all started with the food industry.
The food startup industry turned tasteless in last one year.
The first of the lot to take the hit were Dazo, Spoonjoy, and Langar.
Dazo was backed by some of the known names of Indian Industry. It had investment from Google’s India MD, freecharge’s CEO to name a few.
SpoonJoy too had an impressive portfolio of investors led by Sachin Bansal, the flipkart’s founder.
Around the time, both startups were funded. I read an interesting article in Economic times. The article which pegged the eating-out market at USD 78 billion. Now that’s a huge market to be captured by very few players.
So what went wrong?
According to Singhal, one of the founders of Dazo “We were scaling up and were looking to get into more cities, but were short on capital. At some point we felt we were lagging behind other players and decided to quit.”
Precisely speaking, they overestimated their own growth.
Now this was the lot which could not keep up with the pace and decided to quit.
The story of those who are still hanging in there in the industry is nothing to boast off.
Tiny owl, the blue-eyed startup of food industry started with a bang raising USD 28 million funding from VCs. A few months back, they had to shut office in 4 cities.
One of the co-founders was gheraoed inside one of the offices by employees. They did not allow the founder to leave until they had a firm commitment from Company about getting paid.
The rumors are, employees knew they will be fired but were worried they will not be paid for their work. They were given post-dated cheques by the company.
They were disgusted. The company had splurged money on ads to without planning their expenses.
Food Panda’s VC (Rocket ventures) have been trying desperately to sell their venture in India for USD 10 to 15 million.
The company raised USD 300 million last year. You can imagine the desperation the investors have in getting rid of the white elephant.
They had also put Jabong, Fab Furnish on sale.
Zomato too had to downsize operations recently to cut down losses.
Next in line was Grocery Delivery Business.
My everyday buddy to the toilet, TOI had a full-page ad from an online grocery selling company for a long time.
I know TOI ads are not cheap. Someone who ran the full-page ad for a long time must have had deep pockets.
Well. That’s what I thought.
LocalBanya.com, the company flaunting it’s business on the front page of TOI had to shut shop in 2016. They said it was temporary. If rumors are to be believed, they have run out of cash.
The company was backed by multiple VCs and had raised an undisclosed amount of funding.
the founder of company Karan Mehrotra said, “We are working on building a new platform. People can conjecture, but we will, in a couple of weeks, come out with statement on why localBanya shut operations and what we plan to do next.””
Recently PepperTap, the 25 Million USD backed decided to shut shop.
As per their CEO Navneet Singh ““Compounded with the necessity for discounts, this meant that the cash we were burning on every single order was increasing rather quickly with no immediate end in sight,”
He further added in an article ““We began to test some of these ideas at Nuvo earlier this year and the results were exciting enough for us to pitch to our existing investors as an alternative way to use the capital we have already raised,”
So now they plan to use the money left from the last failure into a new venture. They promise to solve the headache of e-commerce logistics.
I hope the next venture is not VC backed.
The next in queue is Flipkart. Rightly declared as the punching bag of all those who could not raise funding. (I am one of them 🙂 )
So the punching bag “Flipkart” saw something they were never ready for.
They lost 27% of its present $15-billion valuation, according to filings made by a mutual fund managed by one of its investors, Morgan Stanley.
Now that is a lot of money down the drain. The company is on the verge of losing its top positioning in e-commerce industry to amazon.
So what went wrong with the well-funded Indian Startups?
Didn’t they know “Winter was coming?”
Were they oblivious to the ground realities of the market?
Or Did VCs overestimate the business acumen ship of inexperienced new generation business owners?
If you analyze closely, you will notice the biggest reason for the failure of the startups was the huge amount of money they spent in customer acquisition and building GMV instead of profits.
They were barking up the wrong tree.
The fundamentals of business were wrong.
I am no one to preach how the business is done. Since I have not personally built a billion-dollar company.
But from what I have learned from elders in business, Profit and loss are the basics of every business.
When you have a lot of money to spend in the market, spend it wisely.
Don’t go on a wild goose chase splurging millions on quick gains.
The bottom line is “Negative growth is never a growth”.
According to the gurus of industry, the market has stabilized.
I look at it the other way. The market has not stabilized but has disrupted in the wrong sense.
Indian consumer today is a spoiled lot. Take away the discounts, free delivery and look at the market again.
The unicorns have just made life difficult for those who wanted to do the business the conventional way.
The old school method of finding profits by spending every single penny wisely is gone.
The startup culture of India definitely needed a reality check.
I hope sanity prevails.