TinyOwl, the troubled Mumbai based start-up that was once the poster child of the so-called food technology sector, has decided to merge its barely two-year-old online food ordering service with another young start-up, Bengaluru-based hyperlocal delivery service Roadrunnr. Their combined services are expected to be available under a common brand, Runnr, by the end of the month, Mint reported this week.

The deal is the latest example of venture capital investors cleaning house in India’s start-up market, currently in the midst of a much-needed correction.

Roadrunnr and TinyOwl share common investors in Sequoia Capital and Nexus Venture Partners. In addition, while TinyOwl counts Matrix Partners as an investor, Blume Ventures is an investor in Roadrunnr. The merger, it’s reliably known, has been cobbled together at the behest of all four investors, who will swap their existing equity stakes in the respective companies for fresh stakes in the combined entity. Between them, the four investors have pumped close to $40 million into the two companies over the past 18-24 months.

Consolidation within venture capital portfolios has been a recurrent theme since late last year, led by New York-based hedge fund Tiger Global Management. Out of the 10-odd consolidation plays reported over the past 15 months, four involve companies backed by Tiger Global. The latest came last weekend when Titan, the world’s fifth largest watch maker, acquired a majority stake in gems and jewellery e-tailer CaratLane in an all-cash deal. The deal creates an exit for Tiger Global, which, according to start-up database Crunchbase, had invested $52 million in the company over multiple rounds.

Earlier last year, Tiger Global, along with Helion Venture Partners and Accel Partners, sold its stake in baby and kids products e-tailer BabyOye to the Mahindra Group for an undisclosed sum, in what is widely understood to have been a distress sale.

In January, after long-drawn negotiations, the hedge fund pushed through the merger of property search platform Commonfloor with online classifieds platform Quikr, also a portfolio company. The stock swap deal gave Commonfloor’s other investors, Accel Partners and Google Capital, stakes in Quikr. In February, in yet another stock-swap deal, it merged budget stays aggregator Zo Rooms with larger rival OYO Rooms (there is still ambiguity on whether this deal has been completed).

The next consolidation deal that seems to be in the works is the sale of property search platform IndiaHomes. The company’s investors, New Enterprise Associates, Foundation Capital and Helion Venture Partners, are in talks to sell their combined 87% stake to a Mauritius-based private equity firm, The Economic Times reported last month. This comes after earlier reported merger attempts with a couple of rivals failed.

Compared to most investor-driven consolidation deals earlier, the TinyOwl-Roadrunnr merger stands out for being relatively non-controversial. Which is surprising given that the events leading up to the merger started off as being far from non-controversial.

Months after it raised a $15 million Series B round led by Matrix Partners, in which existing investors Sequoia and Nexus participated, TinyOwl fired 200 employees as part of a business restructuring exercise. The September lay-offs were followed by another 100 in November, leading to an ugly incident at its Pune offices where co-founder Gaurav Choudhary was held hostage for several hours by angry employees.

TinyOwl had hoped that the streamlining of operations and tweaking its business model—it was trying out a home-chef-aggregation model—would enable it to raise another large round of funds, reported at $50 million. It managed to raise a commitment of only $7.5 million from its existing investors and on the condition that it meet certain operational milestones in the short term. Mint reported in February that one of its key targets was to increase daily transactions from 3,000 to 10,000 by the end of March.

Whether the merger announced this week indicates that those targets were not met isn’t known yet. What is clear is that in this case the investors took charge early enough to steer both themselves and the company out of what could easily have turned into a disastrous situation. Remember, Softbank-backed Housing.com had imploded just three months before TinyOwl’s problems became public. Of course, it must have helped a great deal that they didn’t have a mercurial founder like former Housing chief executive Rahul Yadav on their hands.

By most accounts, cleaning house isn’t something that venture capitalists enjoy in particular. It simply takes time away from more exciting pursuits, such as chasing deals. But the TinyOwl example is instructive in how it can be done well, when it has to be done.

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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