10 start-ups that lost out
7 min read 01 Jun 2017, 07:00 AM IST10 Indian start-ups that lost the plot (Snapdeal, TinyOwl, Freecharge) or grew too fast for their own good (Housing.com, Rocket Internet) to result in fire sales or shutdowns
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SNAPDEAL* (2010)
Founders: Kunal Bahl and Rohit Bansal
Investors: SoftBank Group, Nexus Venture Partners, Kalaari Capital, Alibaba Group, Foxconn and others
Funds raised: $2 billion
Sale price: Potential sale to Flipkart seen at $1 billion
Launched as a deals discovery platform, Snapdeal shifted to an online marketplace in 2011. Year after year, it kept surprising the market by raising bigger rounds of capital and keeping pace with market leader Flipkart. In August 2015, Snapdeal CEO Kunal Bahl even predicted that the company will overtake Flipkart by the end of that fiscal year. A few months later, it was forced to cut spending to survive as funds dried up and it lost out to Flipkart and Amazon India. As the downward spiral continued, the company had to cut thousands of jobs, shut businesses and further reduce spending. It is now on the verge of being sold to Flipkart at a fire-sale price.
FASHIONARA (2012)
Founders: Arun Sirdeshmukh and Darpan Munjal
Investors: Lightspeed Venture Partners and Helion Venture Partners
Funds raised: $15 million across seed and Series A; undisclosed Series B
Sale price: Shut in May 2016
One of the many start-ups selling fashion, Fashionara tried to grow its business on aesthetics and superior customer service rather than discounts. Not enough shoppers were interested. In 2015, Fashionara pivoted to a flash-sales model to survive. Soon after, the firm wound up.
HOUSING.COM (2012)
Founders: Rahul Yadav, Ravish Naresh, Sanat Ghosh, Advitya Sharma and Abhishek Anand
Investors: SoftBank Group Corp., Helion Venture Partners and Qualcomm Ventures
Funds raised: $160 million
Sale price: Merged with PropTiger at a valuation of $70-75 million in January 2017
Started by Indian Institute of Technology Bombay graduates, Housing.com wanted to be the one-stop shop for property deals and discovery for potential buyers in India and abroad. Its CEO Rahul Yadav and the company ended up representing everything that was wrong with the start-up culture of 2014-15. In 2015, Yadav was fired for his “objectionable behaviour" towards SoftBank and other investors. SoftBank hired an outside CEO to get the company in shape for a sale. In January, another real estate site PropTiger bought Housing.
FREECHARGE* (2010)
Founders: Kunal Shah and Sandeep Tandon
Investors: Sequoia Capital, Sofina, ru-Net, Valiant Capital Partners and Tybourne Capital.
Funds raised: $120 million.
Sale price: $400 million, sold to Snapdeal in April 2015.
Digital payments platform Freecharge is the only start-up in this list that appears on both the success and failure lists. Launched as a mobile recharge service, the company became popular with customers because of its sleek product. It hit a high in early 2015 when it was bought by Snapdeal in the largest consumer Internet deal so far. Snapdeal snapped the start-ups for an estimated $400 million (and has infused roughly $65 million since). Freecharge was to fight Paytm, while parent Snapdeal had locked horns with Flipkart. Paytm simply outspent Freecharge, venturing into everything from utility bill payments and retail to movie, bus and air ticket sales, and now a payments bank. The company was starved of cash partly because of a boardroom battle at its parent Snapdeal. Freecharge is now in talks to sell at a price of just $45-70 million, a fraction of the $400 million paid by Snapdeal just two years ago.
ROCKET INTERNET (2011)
Founders: Oliver Samwer, Alexander Samwer and Marc Samwer
Investors: Early investors included Holtzbrinck Ventures, Tengelmann Ventures, Texas Atlantic Capital and Philippines Long Distance Telephone Co. (now PLDT). Went public in October 2014.
Funds raised: Rocket Internet has ploughed at least $300-400 million into India, in the likes of Jabong, Foodpanda, FabFurnish, Asasa and Printvenue.
Sale price: Rocket sold Jabong to Flipkart for about $70 million and FabFurnish to Future Group for about $10 million. Rocket Internet’s first venture in India, online fashion store Asasa, folded up even before launch. This was in 2011. Since then, the company launched fashion e-commerce portal Jabong, furniture e-tailer FabFurnish, customized printing solutions provider Printvenue and food delivery platform Foodpanda.
While Jabong and Foodpanda tasted reasonable success early on—Jabong running head-to-head with Myntra and Foodpanda leading the food delivery pack—its investments in India succumbed to competition and eventually bombed, burning a big hole in Rocket’s pocket.
Jabong, for instance, could be sold to Amazon for $700 million in 2015, but Rocket wanted more. It was eventually bought by Flipkart for a meagre $70 million. FabFurnish was sold to Future Group for a paltry $10 million after it lost out to rivals Urban Ladder and Pepperfry. Foodpanda lost its pole position to new entrants such as Zomato and Swiggy, and Printvenue is barely heard of. Industry observers blame Rocket’s approach—copy (proven business models in the US and China), adapt, hire (founders), overtake, sell—for the fate of its India portfolio. Besides, Rocket lost much sheen to the funding boom in 2014 and 2015, when a number of competitors to Rocket’s portfolio firms got heavily funded and outspent the company’s India bets, eventually driving them out of business.
ASKME GROUP (2010)
Founder: Sanjiv Gupta
Investors: Astro Entertainment Networks Ltd
Funds raised: $300 million
Sale price: Shut in August 2016
AskMe Group, owned by GetIt Infoservices Pvt. Ltd, is mired in legal tangles and mudslinging between the promoters and investor Astro Entertainment Pvt. Ltd. The company that operated a host of properties such as an online search platform AskMe.com, e-commerce marketplace AskMeBazaar.com, grocery website AskMeGrocery.com and furniture e-tailer Mebelkart shut shop unceremoniously in August 2016 after laying off as many as 4,000 people. The AskMe management, led by former managing director and chief executive Sanjiv Gupta, has accused Astro of deserting the venture and non-payment. Astro’s rebuttal stated that AskMe failed to turn profitable even after absorbing $300 million.
STAYZILLA (2006)
Founders: Yogendra Vasupal, Rupal Yogendra and Sanchit Singhi
Investors: Matrix Partners and Nexus Venture Partners
Funds raised: $34 million
Sale price: Shut in February 2017
Stayzilla is a classic case of competition outspending a business, leading to eventual death. The company could not match the spending prowess of SoftBank-backed Oyo and MakeMyTrip Ltd, the latter being one of the few publicly traded home-grown consumer Internet start-ups. Stayzilla started in 2006 as an aggregator of budget hotels. With competition intensifying—deep-pocketed rivals such as MakeMyTrip and Ibibo identified budget hotels as the next growth driver after their ticketing business slowed. As SoftBank pumped money into Oyo, Stayzilla changed track to aggregate homestays. But the larger rivals had their eyes on homestays as well, gradually outspending Stayzilla, which could barely match their marketing spending and discounts. The company, with vendors contesting non-payment of dues, eventually shut shop in February 2017.
TINYOWL (2014)
Founder: Harshvardhan Mandad
Investors: Sequoia Capital, Nexus Venture Partners and Matrix Partners India
Funds raised: Nearly $30 million
Sale price: Merged with Roadrunnr in May 2016
TinyOwl is one of the tens of food ordering start-ups that cropped up in 2014, based on a similar model previously seen in the US and China. Most of the Indian food delivery start-ups failed, but TinyOwl’s was the most high-profile meltdown. Unlike the breakout food start-up Swiggy, which had its own delivery fleet, TinyOwl relied on restaurants and others to deliver orders. Its customer service was inferior and it eventually failed to raise fresh funds, prompting investors to merge it with Roadrunnr, with which it shared common backers. The combined entity Runnr is also cash-starved and is said to be in discussions for a potential takeover by Zomato, Mint reported on 15 May.
PEPPERTAP (2014)
Founders: Navneet Singh and Milind Sharma
Investors: Sequoia Capital, SAIF Partners, Snapdeal, ru-Net, JAFCO and Beenext
Funds raised: $51 million
Sale price: Shut in April 2016
PepperTap was one of the many hyperlocal grocery delivery start-ups that rode the funding bubble of 2014 and 2015. The company started out by taking orders from consumers through an app, collecting the orders from neighbourhood grocery stores and delivering them to consumers free of cost. The company earned a single-digit commission from the grocery stores that was far lower than the cost of delivery. The start-up thus lost money on every order. Rival Grofers then snagged SoftBank as an investor. That, and the lack of a business model and a slowdown in funding spelt the end for PepperTap.
IPROF (2012)
Founder: Sanjay Purohit
Investors: IDG Ventures, Norwest Venture Partners, Daily Mail Group and Kaplan Ventures
Funds raised: $15 million
Sale price: Shut in January 2017
One of the early education technology start-ups, iProf offered coaching and study material for competitive exams both through online and offline (files in pen drive, secure digital cards and tablets) mediums. iProf was hit by free resource material available over the Internet, schools’ reluctance to try out its material, and, later on, the growing popularity of rival Byju’s. The start-up eventually wound up in January.
(*Sale still hasn’t been completed)
