2014 witnessed the rise of Hyperlocal delivery startups, over 110 were founded in last two years. More than $280 million has been invested since then and majority funding across horizontal and food delivery segments. Owing to its spending power, Delhi tops the list for hyperlocal startups followed by Bangalore and Mumbai.
Sequoia is the most active investor in hyperlocal startups. Its portfolio includes Grofers, PepperTap, TinyOwl, Roadrunnr & 1mg. Even Nexus Venture Partners (TinyOwl, Roadrunnr) and Saif Partners (Swiggy, Spoonjoy, PepperTap) are banking on this wave.
None of the hyperlocal startups are profitable, but the investors believe the business could break even as average order size increases. Indian shoppers have greeted the hyperlocal startups with a lot of enthusiasm and occasional grumbles. Customer demand still comes in unmanageable torrents. This is majorly driven by freebies to acquire customers and because of this, several startups managed to raise initial rounds of funding but failed to get additional capital to keep the lights on.
Something is not right
Food-tech companies got mushroomed rapidly in the past year, becoming a much sought-after eCommerce sector while relying heavily on burning through cash to attract customers in a market that quickly, got crowded. The change in their fortunes is symptomatic of the looming threat of growth-stage funding crunch for Indian internet companies.
Spoonjoy, Dazo and Townrush have closed operations in last couple of months. While there are others such as Tiny Owl & Zomato that are downsizing their workforce because they aren’t able to find business around their technology. All these startups were backed by the most active angel investors of the country.
Pickingo, which has an employee count of 250, has stopped a pilot project in food delivery and plans to focus attention on its existing business in reverse logistics. The proposed deal with Zomato that indicated an investment in Pickingo, did not went through, owing to Zomato’s tough time in meeting its sales target. Zomato has raised two rounds, totalling more than $100m in 2015.
According to a leading data research firm, 19 food-tech startups have raised about $160m in VC funding in 2015 and only five have been able raise money twice.
But there is definitely an opportunity
According to an MIT Review, India’s strong economy in the past five years has widened the middle class, whose engineers, accountants, and corporate managers will gladly spend money in the name of convenience and comfort. Let the rich hire servants; now anyone with the right mobile app also can do fewer fatiguing chores.
“India has been on the verge of something spectacular in eCommerce for God knows how long”, says Punit Soni, Chief Product Officer, Flipkart. “Now, 120 million Indians have smartphones, and in a couple years it will be 600 million. As people access information, and try to buy stuff, use cases for eCommerce explode,” he added.
Amidst opportunity and the goof-ups, there is a rising curiosity about sustainability and the road ahead. Some of the questions if answered can bring back some confidence.
- Most startups that pin their hopes of survival almost entirely on external funding. Do such startups have enough time to correct flawed business models and find innovative revenue strategies before they run out of fuel?
- Startups built a technology first and then are struggling to find a business. Why are they in a rat-race to acquire users by burning a lot of cash and hence seek further funding?
- Why are investors of hyperlocal food delivery no more ecstatic about it? What made them excited earlier? Is it the beginning of downturn?
- Competitors are taking a dig at those closing their operations. What is the secret recipe they have in store, if any?
- Certainly these are not company-specific problems. Why are companies in nascent stage, right after raising capital going through trouble?
Coming Sunday, 08 Nov 2015 there is a panel discussion happening consisting of founders, investors & media personalities. They shall be answering questions raised by the audience, please register yourself and your question here.
Arpit Agarwal, Principal, Blume Ventures
Goutam Das, Senior Editor, Business Today
Chinmay Agarwal, Cofounder, Jugnoo
Rohit Dhawan, Cofounder, Quickli
Prateek Agarwal, Cofounder, Bite Club
Abhimanyu Maheshwari, Cofounder, Yumist
Shekhar Chandra, Chief, YouLead Ventures – Moderator