A total of over 130 internet start-ups have closed down operations in the first six months of calendar year 2017, with the e-commerce and foodtech space contributing to the deadpool the most.
A total of over 130 internet start-ups have closed down operations in the first six months of calendar year 2017, with the e-commerce and foodtech space contributing to the deadpool the most. According to data analytics firm Tracxn Technologies, 19 retail e-commerce start-ups wound down and formed a significant part of the deadpool list this year. The foodtech space saw 11 food-tech start-ups shutting shop. Besides, five start-ups in the health tech segment, seven in the online travel services, five edtech companies and two housing start-ups have also ceased to exist.
This is a much better situation compared to calendar year 2016, when about 450 start-ups had shut shop, as business dwindled and funds dried up. Tracxn didn’t share details about the first half of 2016 separately.
While calendar year 2015 saw $2821.7 million being pumped into e-commerce in India in 121 funding rounds, in 2016 $863.5 million was raised in 144 rounds. Insiders in the industry believed that 2017 would be a year of stability as also a year of clean-up in terms of investment. However, contrary to expectations, $3136.8 million has been raised by e-commerce companies in H1 2017 in 46 funding rounds.
This year, start-ups from tier 2 cities are clearly finding it difficult to sustain themselves with housing and home solutions start-up GoldenYards from Jaipur and Patna based GoRented, both founded in 2015, ending their operations.
The top two retail start-ups which form a part of the deadpool list, ConnecTex and 365studio are both based out of Surat. So is the Gwalior based edtech company Mera Education which was started in 2016.
Chennai based Stayzilla which had raised $33.5 million had to shut operations this year with their founder Yogendra Vasupal being arrested after its creditors filed a criminal complaint against him for non-payment of dues. Another Bengaluru based, online travel company, Room Tonite which had raised $1.50 million last year has also died a slow death. Food tech companies continue to shut down with Mumbai based TheSocial and Gurgaon based Frudor closing operations.
Amit Somani, managing partner at Prime Venture Partners believes that start-up mortality in both India and the US is very high. He tells FE, “Often a company gets funded with little or no clarity on the business model or revenue and end up burning crazy amounts of money. Most of these start-ups were burning way too much money than they were making and there is a mis-match between the burn rate and the revenue rate. Sometimes companies had revenue but burn rates were much higher which stopped them from building a viable business model.”
According to Sreedhar Prasad, e-commerce Partner with KPMG India, said many entrepreneurs still join the start-up bandwagon without a clear idea or business proposition, expecting someone to fund them. This is resulting in more start-ups winding down this year despite the bad experiences of last year, Prasad said.
“Even early stage investors are here to back a company and not only an idea. Most start-ups are banking on the idea itself taking shape after the funding and these are the guys who are dying. The 2nd category is the me-too start-ups who feel their idea is unique but is just another player. The 3rd category of start-ups that are dying are the ones with no knowledge of the domain. Start-up promoters should be adding some value, either he knows that industry inside out or he should be a techie with an internet start-up,” he told FE.
Shekhar Sahu, angel investor in early stage start-ups and co-founder of Healthcare Magic says that most of the investors are sitting on big money but they are very cautious this year after the blunders of 2014/15. “Operations, managing the target-market and managing funds are tough to work on,” he added.
Ondrila S Sarkar