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Business News/ Opinion / Online-views/  Plums and lemons of the start-up world
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Plums and lemons of the start-up world

The next few months will see portfolio consolidation in the e-commerce sector as several start-ups are struggling with their fundraising activity

Consolidation is the name of the game for early-stage investors in start-ups and e-commerce firms as we get into the final quarter of 2015.Premium
Consolidation is the name of the game for early-stage investors in start-ups and e-commerce firms as we get into the final quarter of 2015.

Consolidation is the name of the game for early-stage investors as we get into the final quarter of 2015.

Earlier this week, Mint reported that Bengaluru-based TapCibo Online Solutions Pvt. Ltd, owner of mobile-only food ordering service Dazo, has shuttered operations. The company’s angel investors Google India chief Rajan Anandan, Amazon India managing director Amit Agarwal, Taxiforsure founder Aprameya Radhakrishnan, Freecharge’s former CEO Alok Goel and Commonfloor founder Sumit Jain are likely taking a write-off on their April investment. The quantum of their investment is not known.

The Dazo shutdown comes barely five months after it executed a pivot—industry lingo for a change in business model—from being an online restaurant where it delivered food cooked in its centralized kitchen direct to the customer’s doorstep to being an aggregator of food from select offline restaurants. Clearly, the pivot hasn’t been enough to attract the next round of investors.

Dazo isn’t the only so-called food technology company to be in trouble lately. Last week, separate unconfirmed media reports said that Bengaluru-based online restaurant SpoonJoy has suspended operations in Delhi and parts of Bengaluru. Initially angel-backed by Flipkart founder Sachin Bansal, among others, SpoonJoy raised $1 million from SAIF Partners just this May. The company is now reportedly struggling to raise more capital.

Food technology start-ups have been a pet investment theme with venture capitalists over the past 12-18 months, with more than $70 million being invested in such companies just this year, says Bengaluru-based analytics firm Tracxn. The bulk of that has been raked in by Delhi-based Zomato. If investors, going by reports, are slowing down on deploying fresh capital, it’s a good sign. More capital will flow into emerging market leaders or other promising sectors.

Back to Dazo, one of its angel investors, Sumit Jain, may become part of the overall ongoing consolidation wave. Different media reports suggest that Mumbai-based online classifieds company Quikr India Pvt. Ltd is in talks to acquire a controlling stake in Commonfloor, the property search platform owned by maxHeap Technologies Pvt. Ltd, Jain’s Bengaluru-based company. If the deal does go through, it will be the consumer Internet sector’s next big consolidation play after the Flipkart-Myntra merger in May last year.

Common to the Flipkart-Myntra merger and the reported Quikr-Commonfloor deal is New York hedge fund Tiger Global Management. It owns a significant stake in both Quikr and Commonfloor and may be the key architect of the deal. The hedge fund, which invests in start-ups through a separate venture capital fund, is known to consolidate its holdings, by merging portfolio companies, as swiftly as it closes term sheets. It’s a smart strategy that can lead to potentially better outcomes in terms of returns. Less than 18 months after it pushed through the Flipkart-Myntra merger, the combined entity is now valued at nearly $15 billion.

Tiger isn’t the only early stage investor that has moved quickly to consolidate its portfolio in this decade of venture capital investing in India.

Mumbai-based Nexus Venture Partners, for instance, has been quick to book profits by selling stakes in portfolio companies, some may argue, earlier than anticipated. It has sold stakes in more than half a dozen companies from its early portfolio and was recently among a group of investors who scored an exit from ad network Komli Media which sold its India business to Delhi-based SVG Media for an undisclosed sum.

Nexus’s exits haven’t always been happy affairs. Early last year, Bengaluru and New York-based social media analytics company Salorix shuttered operations when it was reportedly unable to raise follow-on capital from Nexus and Inventus Capital Partners. According to unconfirmed reports, the two investors are believed to have turned off the funding tap after an acquisition bid by social networking giant Facebook reportedly fell through.

Inventus has also seen some portfolio consolidation. In February last year, music streaming company Dhingana, in which Inventus was the first investor, shut down operations (it was later acquired by Rdio) and the venture capital firm, among other investors, had to take a write-off on the investment. Last month, the firm booked profits from the sale of its stake in Insta Health Solutions, which was acquired by Practo Technologies in a $12 million deal. Inventus earlier also profitably exited bus ticketing platform Redbus, which was acquired by South African media conglomerate Naspers in a $100 million deal.

In the next few months, we’ll likely see some portfolio consolidation in the e-commerce sector too, specifically in the fashion segment. Several companies that are currently in the market to raise funds are struggling. Others are in the middle of business model pivots to retain investor interest. Still others have scaled down their fund-raising targets.

For instance, Delhi-based flash sales site Fashionandyou, part of the Smile Group, was in the market to raise $40-50 million but subsequently capped the round at $35 million. The round was led by Morgan Creek Capital and existing investors Sequoia Capital and Norwest Venture Partners participated. CEO Aasheesh Mediratta recently said that the company doesn’t have plans to raise fresh capital for now.

Another company to watch in the fashion segment is private label fashion e-commerce platform Zovi, which was incubated by SAIF Partners about two years ago. In a curious turn of events, Zovi founders Manish Chopra and Satish Mani recently launched a new venture called Little, a mobile-only hyperlocal marketplace. Chopra, whom I spoke to recently, says he continues to run Zovi alongside Little. SAIF, which is also an investor in Little, is itself undecided on Zovi’s future.

It’s going to be an interesting, even defining, quarter to watch.

Snigdha Sengupta is the founder of StartupCentral, a digital news and analytics platform focused on venture capital. She also periodically contributes stories on venture capital and private equity to Mint.

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Published: 09 Oct 2015, 12:46 AM IST
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