Snapdeal-backed hyperlocal delivery start-up PepperTap is shutting operations as the firm and rivals struggle with a funding slowdown, said three people close to the development.

PepperTap will, however, continue to run its reverse logistics business and will also get into other logistics services for e-commerce firms, said one of the three people. PepperTap declined to comment.

Snapdeal (Jasper Infotech Pvt.Ltd) picked up a minority stake in PepperTap in September last year, when it raised $36 million from investors including Russia’s ru-Net, Japanese private equity firm JAFCO and BeeNext Ventures, and existing investors Sequoia India and SAIF Partners.

Snapdeal could not be immediately reached for a comment.

In December, PepperTap raised another $4 million in venture debt from Innoven Capital and acquired Jiffstore, a Bengaluru-based delivery start-up, for an undisclosed amount through cash and stock.

Nuvo Logistics, which controls PepperTap, already has a reverse logistics business and the company had plans to spin off the hyperlocal business into a new entity by March, co-founder Navneet Singh had said in an interview in December.

The firm works with clients such as Snapdeal, Paytm and Shopclues. Nuvo fulfils almost 10,000-12,000 orders a day and is operational across 30 cities, Mint reported on 21 December.

Hyperlocal delivery start-ups such as PepperTap and Grofers, however, have been feeling the heat of a slowdown in investment. These firms operate on wafer-thin margins and end up losing money on every delivery, according to industry experts.

Consequently, instead of expanding, both companies have been shrinking operations.

In March, online grocery BigBasket raised $150 million in fresh funds, giving it additional firepower against smaller rivals Grofers and PepperTap.

PepperTap was shutting operations in six cities, including Mumbai, Kolkata and Chennai, and will be laying off about 400 delivery staff, Mint reported on 9 February.

In September, Gurgaon-based PepperTap had rolled back operations in smaller towns such as Agra and Meerut after a month-long pilot failed to take off.