The start of 2015 was a golden period for the Indian startup ecosystem. Whether it was aggregators, foodtech, tech, agriculture, healthtech or practically any other startup, the funding flowed like water in each of them.
It was the right time to look for funding, as chances were slim that one would return empty handed. It was not only investment firms and angel investors looking to put their money into the new age businesses, but individuals in high places who were looking to gain from this boom.
But, the story seems vastly different as the year progressed to its end; especially so for the foodtech startups.
While most of the foodtech startups thought that the food space was a sure shot success, since people love to eat, they seem to have miscalculated their move and a few of them have fallen flat on their face leaving others on shaky grounds.
Tiny Owl, the food-ordering startup, recently fired employees from its Pune, Chennai and Hyderabad location as they are facing a financial crunch while global restaurant search portal, Zomato, had to fire around 300 of its employees global for not being able to meet their sales target. An angry email sent out to the employees by the founder, Deepindar Goyal, was leaked to the media where he was criticizing the employees for their non-performance.
This is not where the story ends for the food tech startups. Earlier in October, Bangalore-based food tech firm, Dazo, announced the shutting of operations because of lack of capital. The firm, which was looking to scale up operations in different cities fell short of cash and had to end its dream.
Spoonjoy, another food delivery app, too found itself in shaky grounds and had to roll up operations from several places. But, the good news for Spoonjoy came in the form of Gurgaon-based hyper-local grocery delivery platform, Grofers, which was able to onboard, all its employees but will not continue similar operations as per reports.
All these firms had managed to raise some form of funding or the other since the time they started operations in the last one year, yet they failed to save the business from slipping through.
Food technology startups in India have raised a total of Rs 1,138.4 crore since January last year, according to a survey by research firm Tracxn. This includes Rs 100 crore raised by TinyOwl in February, and Rs. 395 crore raised by Zomato in September.
Bengaluru-based Swiggy also raised Rs. 25 crore in a series B round in June – just five months after it had snapped up Rs. 13 crore in series A funding. So what led to the downfall of all these startups?
Different reasons are being cited by experts for the fall of food tech startups that include fundamentally faulty businesses and a faulty ecosystem. Some of the reasons that we think might have led these startups to their downfall are stated below:
- Too young to handle big success: When success comes at a young age, it is very easy to get carried away. That is perhaps the reality of some of the founders of the food tech startups. Most of the founders are freshly out of college and might have worked at a firm or two before starting on their own.
The founders of Tiny Owl though IIT graduates, don’t really have any significant experience. The founders, Harsh Vardhan Mandad, Gaurav Chowdhary, Saurab Goyal, Tanuj Khandelwal and Shikhar Paliwal, are barely 25.
- Financial mismanagement: As viewed by experts and also by experienced employees of their own firms, most of these startups were spending money in the wrong places. Paying high salaries for employees with little or no experience and even less educational qualification, seem to be the order of the day.
Also, a lot of these firms take responsibilities where they are not accountable. For example, in the cases of Zomato and Swiggy, if the customers complain about the quality of food they received, these firms will reimburse the money though they have no control over the food quality.
- Lack of experience: Each of these startups has a very young team working and as such there is a lack of experienced people who can act as guides in times of requirement. There are times when investors come on board, they tend to guide the founders and how them the way to profit cutting down on costs and unnecessary expenses. But, sometimes, this is not taken in the right spirit leading them to their downfall. For example, Rahul Yadav of Housing.com.
- Easy funding: Most of these startups haven’t really had to face a struggle when it comes to funding. It was pretty much served to them on a platter that they failed to hold on to. The rise of individual investors has made life much easier now as firms can now seek and find their own investors if rejected by one. They have too many options open now for their own good.
- Lack of right talent: One of the employees of Tiny Owl had said, “They did hire really experienced people and they deserved to lead the team and eventually most of them left. Retaining good talent has always been a problem in the company.” This might be one of the most critical reasons of the fall of startups, unable to retain experienced people. Going forward, hopefully the surviving startups with take a cue and implement them.
At the end of the day, it is about the survival of the fittest. If you manage to learn from the mistake of others and correct yourself on time, you stand a chance in this highly competitive ecosystem.