Hyundai Verna
Business

FAILURE FOR SOME LESSONS FOR MANY

Hold on, I am going to share a shocking fact about startups. In the year 2016, more than 1,000 startups shut down in India. Several others folded up. As many as 1,000 startups shut down, more than half of which were founded in the Indian startup ecosystem’s takeoff period of 2013 and 2014. And there are so many others that are struggling to survive and are uncertain of their fate in the upcoming days.

What went wrong? Strategies? Planning? Funding? Target customers? Or all together? Some were startups solving real problems that simply ran out of runway as VCs tightened their purse strings and hedge funds fled the scene. Others found, to their dismay, that me-too business models borrowed from the West don’t always work in India. Several got gobbled up in low-value acqui-hires.

The reasons for the failures were varied, and there’s a lot to learn from them. Here’s a selection of startups that closed last year… along with analysis of the lessons we can draw from their experience.

1. Peppertap, LocalBanya GrocShop

Industry: Online grocery

Hyperlocal grocery delivery startup PepperTap has the dubious distinction of being the biggest failure of 2016. The Gurgaonbased startup had raised over US$50 million, including a US$36 million series B round led by ecommerce player Snapdeal in September 2015. And yet, less than a year later, it shut down. It’s not the only one: LocalBanya, which raised US$5 million, also floundered and bit the dust. A third significant flop was GrocShop, founded by IIT Bombay alumni and selected by Google for mentoring.

Analysis: Essentially, grocery delivery startups have been ‘buying’ customers, who pay no convenience fees to get the groceries delivered to their doorsteps. Also, when a discount is offered to acquire more customers, it’s the local retailers who grab the cheap groceries from these apps, thus defeating the intention to acquire more customers.The bigger players hope to offset the cash burn with scale, but that has run into problems too.

Newer players claim to have learned from the mistakes of their predecessors by maintaining a sharper focus. The leading player BigBasket, which is also one of the earliest in this space, has adopted an inventory-based model by sourcing, stocking, and packing its grocery. This is a deeper play than those jumping in to connect suppliers with customers.

2. iProf, Purple Squirrel

Industry: Ed-tech (online education)

Edtech is another domain in India which puts investors in a dilemma. Its potential is huge in a population of 1.3 billion with scarce access to good quality education. But sales cycles are long, traditional institutions slow to adopt innovation from outsiders, and there are too many me-too players without the patience to tackle core problems.

A case in point is iProf, one of the earliest test prep startups in a country where college entrance exams are do-or-die affairs. It raised US$15 million in its seven-year run, but wound up in 2016. Another edtech startup, Purple Squirrel, with US$2 million of funding, shut down early 2016.

Analysis: The biggest player in India’s edtech space has an online-cum-offline model. Byju’s uses a chain of coaching centers to complement its apps. It has raised US$149 million, including US$125 million in two rounds this year alone. Among its backers is Mark Zuckerberg.Edtech startups have two main problems to solve: a) finding ways to monetize in a space where consumers are used to free stuff online, and b) building differentiated products and services.

3. Zoomo (GoZoomo)

Industry: Used car marketplace

This was an unusual shutdown. Used car marketplace Zoomo (earlier called GoZoomo) raised US$7 million in funding, had more than half of it left in the bank, but decided to call it quits. The founding team of three IITians looked at the data and saw the unit economics were not adding up, despite several iterations in the business model. Then they took the tough decision to shut shop instead of burning VC money on an unsustainable business.

Analysis: The problem it set out to solve was the lack of trust in the Indian used car market, where vehicle history rarely has a paper trail. GoZoomo tried to crack this with inspectionbased quality assurance for peer-to-peer transactions, keeping car dealers out of the marketplace.

The problem GoZoomo ran into was haggling over price, in a culture where consumers often put a premium on discount instead of quality. Perhaps the market was just not ready for this solution – because without a doubt there’s a problem of trust in used cars, despite the presence of several well-funded players like Cardekho, Droom, and QuikrCars.

4. AskMe

Industry: ECommerce

If the GoZoomo founders displayed rare ethics in returning millions of dollars to their investors, here’s the other end of the spectrum.Malaysiabased investor Astro had to file a petition in the Delhi high court to close down Getit Infoservices, the parent company of ecommerce marketplace AskMe.

Analysis: The investor says the business has been floundering despite the US$300 million it pumped in since 2010. And despite holding 99 percent of the shares, it was thwarted in liquidating the company.Getit was a listing site for small vendors. It morphed into an ecommerce marketplace, trying to leverage its vendor database. But it struggled to set up a managed system for the vendors to sell online. Top managers complained of lack of transparency from the founding team.

5. Doormint

Industry: Laundry

The marketplace model has a low entry barrier, but it’s hard as hell to execute profitably in India. On-demand laundry startup Doormint discovered this the hard way.It began as a home services startup in Mumbai, then pivoted to the laundry vertical for more focus. This seemed promising and Doormint was selected in the first batch of the Google Launchpad accelerator.

But despite several tweaks to its business model, it was unable to scale up without an unsustainable cash burn. “The costs of processing clothes, pick up and drop logistics, and packaging were difficult to recover through prices,” Doormint cofounders Abhinav Agarwal and Naman Lahoty said in a goodbye statement.

Analysis: One factor that neither the founders nor investors seem to have taken into account is the widespread use of lowcost house help in India. Every neighborhood also has a local laundry person. An online laundry service has to beat that in convenience and cost. That’s a tall ask.In the case of Doormint, the assumptions it made about the problem it was solving and its execution were proven wrong.

 

The costs of processing clothes, pick up and drop logistics, and packaging were difficult to recover through prices

 

6. TinyOwl, ZuperMeal, BiteClub, Zeppery, iTiffin

Industry: Food delivery

Food delivery startups have borne the brunt of the yo-yo effect of a funding gluttony last year and starvation this year. The failures of the well-funded TinyOwl and ZuperMeal typify the problems in this space.

TinyOwl raised US$15 million in February 2015, followed by a bridge round of US$7.4 million in October to give it an extended runway. But all the funding could not solve the core problems of delivery costs, negative margins, and unreliable food quality and service from restaurants. It had acrimonious layoffs followed by a merger with logistics startup Roadrunnr.A similar fate befell Zupermeal, which wanted to connect home chefs with professionals ordering food in cities. It got US$2 million in seed funding from angel investors, including celebrity chef Sanjeev Kapoor. But it closed down within eight months. iTiffin, backed by Bangalore cricket star Robin Uthappa, had a subscription-based model for delivering meals with a predefined calorie count. It was unable to raise growth funding. Likewise with Gurgaon-based BiteClub, which could not make it despite backing from prominent angel investors like Alok Mittal, founder of debt financing company Indifi, and Aneesh Reddy, founder of Capillary.

Analysis: As for Zeppery, it modeled itself on American mobile shopping app Tapingo. It connected users with food outlets nearby. But the startup could not scale.Overall, the food tech space saw an 87 percent decline in funding in 2016.This left FreshMenu, which developed its own kitchens to ensure quality and build a brand, sitting pretty and talking of becoming profitable next year. And the well-funded Swiggy emerged as a dominant player amid the ashes. It raised US$57 million this year, and got breathing room to experiment with its own kitchens. It also paid attention to the process of onboarding restaurant partners and providing Uber-like efficiency.

7. Fashionara, Ladyblush

Industry: Fashion

Fashion ecommerce is another area with too many copycats and too little differentiation. So it’s not surprising to see some spectacular flameouts here.One of them was Bangalorebased Fashionara, which adopted a flash sales model. It could only lure customers with deep discounting.

Analysis: Once the cash ran out and no more investors were in sight, it had to shut shop. This, despite being founded by experienced professionals – former Reliance Trends CEO Arun Sirdeshmukh and former Times Internet CTO Darpan Munjal. US$8 million in funding and a four-year-run went to nought.Similarly, women-only fashion portal Ladyblush, based in Gurgaon, had US$4 million in funding and four years to get its act together. But once the funding dried up, it was left blushing.

8. Truckmandi, Parcelled

Industry: Transport and logistics

An estimated 15 percent of India’s GDP is spent on logistics and transportation. Logistics and delivery account for 30 percent of the costs of ecommerce companies in India.Little wonder there’s been a plethora of startups in this space, with investors buzzing around them. But logistics, transportation, and delivery are complex in India and costs can spiral out of control. The two failed startups Parcelled and TruckMandi are evidence of that.

Parcelled was in the business of last-mile logistics, handling pick-ups, packaging, and moving goods to the next point in the delivery chain. But it closed operations because of poor margins and cash burn. TruckMandi, founded by former employees of ecommerce company Snapdeal, was an on-demand truck booking app. Transporters could bid for customer loads for a fee – two percent of the carrying charge. It sounded good on paper and raised US$2 million, but shut down in a year and a half.

Analysis: Logistics is a space that separates the wheat from the chaff quickly. “It is not just about booking a truck,” LetsTransport co-founder Pushkar Singh, who had earlier managed a biscuit manufacturing unit for ITC, had explained. What he meant was that the logistics needs of a biscuit manufacturer are different from those of a food delivery business or a construction business.

“We understand the client from an operations perspective and then cater to their needs, instead of just sending them any truck,” Pushkar told. His startup has backing from Japanese VC Rebright Partners and wants to help its clients adopt a Japanese-style just-in-time manufacturing model, which requires wellplanned, appropriate, and timely logistics support.

9. Buildzar

Industry: Real Estate

A sudden change in the business environment can sound the death knell for a startup. This is what happened to Buildzar, a one-year-old marketplace for building materials in Delhi NCR (National Capital Region).

Analysis: Last month, India imposed a clampdown on the use of cash, in a bid to curb black money and digitize the economy. The real estate business, where cash transactions are the norm to avoid various taxes, got hit the most. Suddenly, sellers became scarce on Buildzar and it had to shut down. It did not have a long enough runway to adjust to a new way of doing business.

10. Klozee

Industry: Fashion eCommerce

A number of startups got VC backing in the fashion rental space. It’s a proven model in the US, with Poshmark and Rent the Runway, as well as in China, with Secoo.Flyrobe, Liberent, Elanic, SwishList, Klozee, The Clothing Rental – a whole line of startups came up in the last couple of years to crack this space in India. But it’s harder than it sounds on paper.

Klozee, which had backing from TracxnLabs, the investment arm of Tracxn, shut down within six months of its founding. “We felt that the market is not prepared for this. We did not see demand shaping up the way we expected. Klozee was doing around 12-15 orders a day,” Klozee cofounder Arman Haji told.

Analysis: Indians are not used to borrowing clothes, even to flaunt high fashion. Apart from the concept itself, many would be concerned over hygiene, despite assurances of super cleaning.It may take time to overcome this mindset and develop the market, which has great potential on paper. Klozee did not have the funding or business model to stay the course. But others may crack it. Even as Klozee closed, Flyrobe raised a series A round of US$5.3 million from Japan’s Gree Ventures in August to be the “Uber for women’s fashion.”

 

We understand the client from an operations perspective and then cater to their needs, instead of just sending them any truck.

 

11. Shotpitch

Industry: App

A regulatory shift also appears to have contributed to the downfall of Shotpitch, a mobile app to enable an entrepreneur to send a pitch to an investor with a single click.

Analysis: Opening new channels of funding for early stage startups on mobile devices seemed like a logical extension of crowdfunding and other online funding models. But it’s a gray area. The Securities and Exchange Board of India issued a notice on August 30, cautioning investors that such platforms may be violating the laws on private placement of equity by operating like stock exchanges.The Shotpitch founder, Prashant Sharma, had earlier worked for funding platform LetsVenture.

12. Autoncab

Industry: Transport

A number of startups came up in India, wanting to be the Uber for three-wheeler auto-rickshaws. And they even caught the attention of observers abroad as the poor man’s Uber. These mobile auto-hailing apps are “demonstrating how modern technology can be mashed up with traditional technology to solve problems in developing cities around the world,” gushed Harvard Business Review.

Analysis: Unfortunately, the ground reality is different. Adoption has been slow among drivers even in tech hubs like Bangalore and Gurgaon. Riders haven’t rushed for them either, because the fares on hatchback Uber cars work out almost the same as auto-rickshaw fares.

Inevitably, the auto-rickshaw apps have started to die. Gurgaon-based Autoncab’s closure is a case in point. It’s probably the well-funded players like Ola – or Uber itself – who’re better placed to crack the “Uber for auto-rickshaw” space. The smaller players just don’t have the financial muscle, knowhow, and experience for it.

13. FranklyMe, Murmur

Industry: Media App

Now, here are two other startups that were part of the first batch of the Google Launchpad accelerator program. Like on-demand laundry startup Doormint, FranklyMe and Murmur shut down barely a year after attending the Google program in Silicon Valley.

Analysis: FranklyMe began as a site for connecting celebs with fans, then pivoted to video blogging. It had tools to help users create and post videos. But it was unable to build traction. “While the market seems keen on adopting video to consume happenings around itself, video creation still remains a challenge and probably a problem a little ahead of its time,” FranklyMe founder Nikunj Jain said in a blog post.Murmur was another media app aimed at millennials, offering a personalized mix of photos, videos, GIFs, and news. Again, this had no clear value proposition or monetization scope.

 

“ While the market seems keen on adopting video to consume happenings around itself, video creation still remains a challenge and probably a problem a little ahead of its time. 

 

14. DateIITians, Cogxio

Industry: App

And finally, we have the heartbreak of India’s first Tinder shutting down. Founder Layak Singh started DateIITians while he was a student at premier engineering college IIT Kharagpur way back in 2011. Being a novelty, it quickly went viral but that didn’t translate into stickiness.

The founder then launched a new startup, Cogxio. This was a dating app that used location intelligence to link up those who were already connected online.

Analysis: It wanted to tie up with consumer internet businesses to provide dating options like places to eat and vacations. But by now, there were already wellfunded players like TrulyMadly, Woo, and Vee. Tinder also arrived in India, and so both DateIITians and Cogxio packed up. It just could not get backing in time to build a viable business model.

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