BackFive start-ups that have changed their business models to survive fund crunch
A look at some start-ups which have executed so-called pivots in their business models over the past six months, primarily because of a cash crunch
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Bengaluru: With a funding slowdown taking hold over the past six to nine months, many Indian start-ups are looking at new business models and focusing on strategies that can help them survive.
Venture capital (VC) investment in India plummeted 58% to $583 million in the June quarter over the previous three-month period, according to a report by KPMG and CB Insights released last week, a clear signal that Indian start-ups are facing tough times.
Mint takes a look at some start-ups which have executed so-called pivots or shifts in their business models over the past six months, primarily because of a cash crunch (and changes in government regulations in a few cases). These are usually last-ditch survival attempts, and do not guarantee success.
PepperTap
Since its founding in November 2014, hyperlocal delivery start-up PepperTap has raised at least $51 million from Sequoia Capital, SAIF Partners, ru-Net and Snapdeal, among others, and competed with Grofers. Of these, about $40 million came between September and December 2015.
However, in April this year, PepperTap decided to shut down its grocery delivery business as the firm struggled to scale amid a funding slowdown, thin margins and high cost of delivery, Mint reported on 23 April. The company instead decided to pivot to a full-stack e-commerce logistics firm.
To be sure, Nuvo Logistics, the company which controlled PepperTap, already has a reverse logistics business.
In September last year, the Gurgaon-based company rolled back operations in smaller towns such as Agra and Meerut after a month-long pilot failed to take off. In February this year, PepperTap shut operations in six cities: Mumbai, Kolkata, Chennai, Ahmedabad, Chandigarh and Jaipur. Finally in April, the company shut down operations in about 10 more cities, including Bangalore and Delhi, to bring the curtains down on its operations.
“Shutting down PepperTap is an extremely difficult call for us but it’s the need of hour. Our foray into full stack logistics space is a well-pondered decision and our experience in consumer as well as business-focused logistics will certainly help us to build next generation e-commerce logistics start-up," Singh had told YourStory in an interview in April.
Zoomcar
Self-drive car rental start-up Zoomcar, backed by Nokia Growth Partners and Sequoia Capital, among others, is pivoting to a marketplace, The Economic Times reported in June. The company is roping in third-party vendors and car dealers to increase supply of cars as against its earlier modus operandi of renting out cars owned by the company itself.
“Since 2014, we’ve been working with different stakeholders, whether it’s the government, the auto companies, the dealers, etc. and we were able to kind of work on a structure, which we found to be fully compliant with the legal system, while also have the potential to scale," said Zoomcar chief executive officer Greg Moran, in an interview to The Economic Times. “Given our size, we don’t want to do anything ad hoc or kind of one-off—we want to do something that can have a long-lasting impact that can scale and make a large splash across the country."
Zoomcar has so far raised about $21 million in external funding.
LocalOye
LocalOye was one of earliest home services start-ups to attract attention, especially after raising $5 million from Tiger Global Management LLC and Lightspeed Venture Partners. However, things started going downhill for the company and LocalOye laid off about 60 employees in November last year after failing to attract fresh investment. The company is now steering itself towards becoming a business-to-business platform, VCCircle reported in June.
“We don’t want to put in a lot of money in marketing initiatives in an attempt to acquire a customer in a business-to-customer (B2C) model. We are now focusing on acquiring customer in a cost-effective way, and thus are focusing on the B2B business," Aditya Rao, founder, LocalOye, told VCCircle.
Helpchat
Online complaints redressal start-up Akosha, in July 2015, pivoted its service to become a chat-based personal assistance platform and rebranded itself as Helpchat. The company, which started out as Akosha in 2010, was founded by Ankur Singla, Vishal Pal Chaudhary, Vishrut Chalsani and Avinash Vankadaru. Akosha raised about $5 million from Sequoia Capital in July 2014 and went on to raise another $16 million in May 2015, right before the pivot and rebranding.
The company had a bumpy ride even after the pivot. It laid off more than 100 employees in October last year to cut costs amid a funding slowdown.
Helpchat, however, shut down the chat service in May this year and laid off about 100 more employees, especially in the chat operations team. The company allows transactions across multiple categories such as cabs, food, utility bill payments and recharge, among others.
“We just realised that the amount of time a person takes to do a transaction on chat is around 10x longer than just clicking things. We ourselves were not using the app," chief executive Ankur Singla told Yourstory in an interview in May.
Jabong
Jabong is shifting from an inventory-led model to a marketplace model as it aims to comply with rules on foreign investment ahead of a potential sale to e-commerce firm Snapdeal, Mint reported on 21 July. Xerion Retail, which has been selling most of the goods on Jabong, has now made space for three more vendors: Bren Trading Pvt. Ltd, Ravenna Fashion Pvt. Ltd and Wearhouse Products Pvt. Ltd.
Global Fashion Group, which owns Jabong, is in advanced discussions with Softbank-backed Snapdeal to sell the online fashion retailer. The deal is estimated to be around $50-75 million, largely in cash, which would allow existing investors Rocket Internet and Kinnevik AB to exit Jabong.
Under India’s rules announced in March, foreign direct investment (FDI) is not permitted in inventory-led e-commerce firms which directly buy, stock and sell goods to their customers. However, online marketplaces where multiple vendors hawk their products can accept FDI through the automatic route. Still, no seller on a marketplace can contribute more than a fourth of its sales.
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