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Business News/ Companies / News/  E-commerce start-ups in struggle for survival
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E-commerce start-ups in struggle for survival

E-commerce firms are finding it tough to raise money as investors become increasingly parsimonious

Well-funded sites such as Myntra, Snapdeal and Jabong are increasingly being approached by struggling start-ups with takeover proposals. (Well-funded sites such as Myntra, Snapdeal and Jabong are increasingly being approached by struggling start-ups with takeover proposals.)Premium
Well-funded sites such as Myntra, Snapdeal and Jabong are increasingly being approached by struggling start-ups with takeover proposals.
(Well-funded sites such as Myntra, Snapdeal and Jabong are increasingly being approached by struggling start-ups with takeover proposals.)

Bangalore: As investors become increasingly parsimonious about giving money to e-commerce start-ups, sites are shutting down at a faster pace than before if they can’t stay alive by allowing themselves to be acquired at rock-bottom rates, executives and analysts said.

Sites such as Indiaplaza.com, Rock.in and Urban Touch, which raised anywhere between $1 million (around 5.5 crore today) and $10 million each, have either drastically cut back on operations or gone out of business since the beginning of the year.

In the past six months, 136 e-commerce start-ups have folded, according to data collected by Ashish Sinha, who runs the website NextBigWhat. The rate of closures has increased by roughly four times since September, compared with the preceding eight-month period, according to data compiled by Microsoft Corp.’s India Accelerator programme.

“There are other closures that we haven’t even tracked. It (shutdown) used to be a story once in three months, then once in two months. At the beginning of the year, it used to be once a month, now it’s two-three a month," said Mukund Mohan, CEO-in-residence at Microsoft Accelerator, which helps and advises start-ups across India, China, the US and Israel. “Their revenue growth is not enough. The customer acquisition cost is very high. So they are not able to get funding. A lot of these companies would have needed a lot of funding for a lot of time. Now the investors are saying no," he said.

Apart from investors providing follow-on funding to their portfolio companies, e-commerce firms are finding it tough to raise money, said Deepak Srinath, who leads the technology and emerging sectors practice at Allegro Capital Advisors, an investment bank.

“A lot of closures are not even announced. They just phase out operations, they aren’t investing, but the website is still there. The pace of shutdowns and consolidation has increased and it will increase further in the coming months," he said.

Based on Internet activity, social media presence and founders’ current financial position, there are at least 100 more start-ups on the verge of shutting down, said Sinha of NextBigWhat.

Many small sites may be shutting down but sites that are financed to a “reasonable degree" are still going strong, said Alok Mittal, managing director at investment firm Canaan India.

Some of these well-funded sites such as Myntra, Snapdeal and Jabong are increasingly being approached by struggling start-ups with takeover proposals. “We’ve gotten proposals in the high single digits from sites in fashion retail to acquire them over the past three to four months, all of which we rejected. We’ve seen some of these shut down or get acquired," said Manu Kumar Jain, a co-founder at online retailer Jabong.

Private equity firms such as SAIF Partners and Tiger Global, which have pumped in hundreds of millions in various e-commerce start-ups, are also merging some of their portfolio companies to cut losses. In February, apparel retailer Zovi.com bought rival Inkfruit.com, both of which are owned by SAIF Partners.

With some investors still eager to invest in the industry, a few sites that have cut back on operations are clinging to the hope of a revival.

Koolkart, a Bangalore-based retailer, shut last week, shortly after one co-founder quit. However, Suneil Chawla, another founder, said the site would be operational again in six-eight weeks. “One of the co-founders left, so we have to revamp," he said. “It’s only a matter of time." Gaurav Kachru, a partner with a new early stage venture capital firm 5ideas Startup Superfuel Fund, said they are searching for new online retailers, particularly those serving niche markets.

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Published: 20 May 2013, 05:48 PM IST
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