Honour in Hurry ! The Startup Case
In the past few months a lot of buzz has been seen around startup ecosystem. Flow of foreign investment as seed funds & rise of angel investors have triggered many entrepreneurial dreams while incubation centers & co-working spaces have been evolved as catalysts towards the perusal of these dreams. Governments have also announced several soaps & freebies for startups whereas big investment houses are seen bullish over Indian startup journey like never before. Many economists have put startups as one of the critical driving factor for economy double digit march. Everything seems great & going but several other things are also happening simultaneously & now more often. Here, I like to highlight an “unnecessary hurry” to term “fundraising” as a “successful entrepreneurship” which in turn is badly hurting the entire space. Chasing GMVs, App Downloads or UVs have become a trend to attract new funding rounds. Majority of startups & their founders are seen unaware about their own business model & revenue growth plans. With below few cases, i have tried to explain the impact of preaching “hurry” (in startup scenario)
Most recently travel startup “Stayzilla” has shut down its operations after raising around $33 million in funding from investors like Nexus Venture Partners and Matrix Partners across multiple rounds. While addressing to employees & investors, Stayzilla CEO Yogendra Venugopal (Yogi) has said “The initial 07 years were all about having negative working capital, positive cash flow and a sustained ability to fund our own growth. Those were the only metrics we tracked. In the last 3–4 years, though, I can honestly state that somewhere I lost my path. I started treasuring GMV, room-nights and other ‘vanity’ metrics instead of the fundamentals of cash flow and working capital.” Shut down can be seen as a normal business practice but what more concerning is the logic given by the CEO of the startup to which Ratan Tata funded YOURSTORY once called “Godzilla of Travel”. (Till writing of this article, Stayzilla CEO was in Chennai Jail for non-payment of outstanding vendor invoices).
Stayzilla episode is not just a case of startup malfunctioning. Amid financial crisis, last month Snapdeal founders announced 100% salary cut for themselves to trim costs along with reduction in compensation for some other top brass of the “yet to make profit” billion dollar valued startup (on the day of writing this article, snapdeal major investor Japan’s Softbank was reportedly involved in orchestrating a possible merger between Snapdeal’s close rival Flipkart). In an email to Snapdeal employees, Co-Founder Kunal Bahl, has admitted the mistake of the business expansion much before “the right economic model and market fit was figured out” (In 2015 Snapdeal has acquired mobile recharge & bill payment website (now an e-wallet) Freecharge in $400 million and has invested Rs 200 Crore in 2016 on its own brand makeover). On the other hand, last year in December, Snapdeal’s rival & India’s largest ecommerce platform Flipkart has been devalued for the sixth time, pegging its worth at $9.9 billion (company reported a loss of Rs 5,768.8 crore in FY 16 & is reportedly in talks to acquire loss making Indian operation of eBay).
Last year, grocery startup PepperTap after raising almost $50 million shut down it shutters (PepparTap was once compared with US Instacart) whereas the closure of market place “Askme” has been considered as “most iconic and prolific shutdowns of the year 2016” as $300 million of VC funds evaporated into thin air, overnight. According to Mohan Kumar, ED, Norwest Venture Partners India “This is a natural progression,” “When you look at the ecosystem, not more than 20% of the startups succeed. Two to three years after a startup’s inception is a time when you see high mortality. There is too much competition, and only a few survive”.
Success is not sure even when sincere efforts have been given but such a coronation to declare fundraising as an entrepreneurship is a problem, creating unnecessary fuss. Today, every new entrepreneur wants to become either Bansal or Bahl, not to address the real world issue through sustainable products but to raise funds & enjoy a corporate stardom.
As somebody has said “profit is the only sanity while rest all is vanity”, I strongly feel Indian startups will realize this, sooner or later.