In the last few months, VC-backed Indian startup companies have finally come face to face with harsh realities of the startup world.
The risk taking ability of entrepreneurs has come to question and the exponential growth, they claimed while taking funds from VCs had made way for a negative growth. Tough questions were to be answered now.
Some startups had to scale down operations. Others had to shut shop.
The list of failed startups companies in India 2016 could very well be a show where all top failed startups can walk the ramp displaying the amount of money they have tanked.
In the 2016 startup world where terms like GMV had made way for Profits, the inevitable had to happen.
The list of startups that failed has reached a number that VCs are jittery from spending in new ventures.
VCs have started asking the tough question “Show me the money?”.
The Indian entrepreneurs, 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 lost its taste in the last one year. They contributed the most to the list of failed startups in India in 2016.
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 the Economic Times. The article 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 that 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 the food industry started with a bang raising USD 28 million in 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 the 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 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 was running a full-page ad from an online grocery selling company for quite some 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 its business on the front page of TOI had to shut shop in 2016. They said it was temporary. If rumours are to be believed, they too 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 a 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.
I have summarized a list of 10 failed startups (2016) in India along with lessons from their founders. Some of them really spoke their heart and trust me, it takes a lot of guts to accept your mistake. I hope you learn the right messages from the failure:
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Top 10 Indian Startups that failed in the year 2016
The company’s founder Harshvardhan Mandad said: “Each delay in de-boarding would have reduced cash in bank and with it the chances of survival.”
The company had raised more than $27million from investors including Sequoia Capitals and Matrix partners but lately, they had to shut because:
a.) The uncoördinated hiring, and later retrenchment.
b.) Getting 50 Cr. From partners.
c.) Fewer orders and not giving discounts.
d.) No artificial intelligence used. There was no data analytics when ordering from the app.
e.) They hired a Chief technology officer (CTO) at Rs 1.5 Cr./annum with a joining bonus of Rs 50 lakh.
When asked, Founder Shashaank Singhal replied “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.”
Why they failed is visible from his reply. The main reason the company failed was the lack of funding and No investor was willing to invest. Lack of money killed the business.
In Nov 2014 Navneet Singh, an IIM Ahmedabad graduate founded PepperTap. It was built to deliver groceries from local stores to neighborhood customers within two hours. Orders could be placed through the company’s mobile app or website.
This company raised funds up to $50 million. But with two years of their start founder himself called Your story and confined about Shut down.
The main reasons why they took the step were:
a.) Lacking technological resources
b.) Too many stores opened online far too quickly.
c.) sometimes customers would be unable to view all items for sale.
d.) Unable to conserve funds to keep the company financially solvent.
When asked, the founder replied “We believe that the customers now want better online experiences, seamless offline interfaces with ‘unexpected’ customer service. Our promise is to present a premium online fashion mall that will offer choice, convenience, superior value and world-class user experience to customers in India”
The reason for their failure was:
a.) Heavy losses and huge rivalries from Flipkart, Snap deal, Myntra, Jabong & koovs.
b.) Lack of funding
Aditya Gandhi & Sahiba Dhandania were the founder of Purple Squirrel, they launched their company in the year 2013.
The reasons why they couldn’t last long were:
a.) The long-term plan Failed.
b.) They burned their own cash. The margins started to disappear.
c.) The valuation of the company was too high.
d.) Expected sales did not happen.
AskMe’s principal investor Astro Holding said it will appoint a forensic auditor to check the books of the startup’s parent firm Getit. Earlier, a similar forensic audit was ordered by Rocket Internet in its invested firm Jabong.
The reason the company decided to shut down:
a.) Non- payment issue from Astro.
b.) Owing to mismanagement and lack of corporate governance.
c.) Huge Investments on celebrities to endorse the brand.
d.) AskMe also saw resignation from more than 650 of its employees.
Another surprising shutdown was of ZuperMeal, a home delivery food venture-backed by world-famous chef Sanjeev Kapoor. It allowed users to pre-order food from nearby restaurants. It closed its operation in May after just eight months of raising seed funds from celebrity chef Sanjeev Kapoor.
I did not find enough material to list the reasons but i am assuming lack of market demand for the service as a reason for failure.
AUTOnCAB was a gurugram based auto-rickshaw booking app. It got shut down its operation after getting stiff competition from its heavily funded rivals Ola and Uber. Launched in 2014, the startup laid off 40 employees in the process.
Even this company couldn’t last long, reasons for failure:
a.) Ola and Uber offered a lot of discounts and incentives which they could not match.
b.) They failed to raise funds
FranklyMe was a video micro-blogging website founded by Abhishek Gupta and Nikunj Jain in 2014 with the premise of letting people express themselves through videos. It has raised $600K funding from Matrix Partners.
Despite the fact it was a well-funded company, it failed to capture the market attention and closed down all their operation in Feb 2016.
Reasons for failure:
a.)Not able to meet sustainable product-market fit.
b.)They tried to solve a lot of use cases at the same time.
c.)Shortage or Non-availability of funds.
The Mumbai-based startup offered grocery shopping from the comfort of homes or offices at competitive costs. The startup was started in November 2014 by IIT-Bombay alumni Rahul Kumar and Ayush Garg. It was a part of Microsoft’s startup program, BizSpark, and among the 16 startups which were selected for the Google Launchpad program.
It reportedly failed to find a profitable growth model in a segment that was otherwise attracting investors in droves.
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 on 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.