Lessons From The Epic Fails Of Well-Funded Startups

 

In the startup world, failure is a given. Fail fast is the founder’s mantra. Make a mistake, learn from it, move on, say the experts. When startups are well funded—and have a growing number of staff members and stakeholders, it’s not quite so simple.

We know that the road to success is paved with bumps. It’s possible to rise from the ashes of a startup’s crash and burn. We’ve reported how one CEO picked herself up and bootstrapped another startup that’s now a smash hit with over $100 million in revenue. Others pulled a hard pivot when their first idea didn’t measure up.

CB Insights combed its venture and angel investment database and pulled out 92 examples of startups that raised over $100 million but still didn’t make it. Fatal flaws abounded, from financial fraud to competition, or burning through money while being unable to generate sustainable revenue. We’ve winnowed it down to five among them. Here are their cautionary tales.

Quirky—Executed by Expenses

The platform for crowdsourced inventions was met with skepticism at first, but then won over investors and managed to raise over $185 million from well-known VCs such as Kleiner Perkins Caufield & Byers and Andreessen Horowitz.

The problem was a systemic one. Despite the funding, Quirky’s business model was just too expensive. Unlike Kickstarter, which only provides its actual platform for startup founders, Quirky was offering entrepreneurs with a vision from manufacturing to marketing. Taking 90% of inventors’ profits still didn’t prove to add up, especially when also factoring in the security flaw of its smart home device subsidiary Wink.

Rdio—Killed By Competitors

Back in 2010, Skype founders pioneered one of the first on-demand music streaming services to hit the U.S. with a $5 per month web plan that accessed some 7 million songs. Spotify was close on its heels though, and within months, the Swedish startup launched its own free streaming service stateside. Rdio continued to soldier on, refining its products and taking a cautious approach to generating profits that managed to snag $117.5 million from investors.

Unfortunately for Rdio, playing it safe was a mistake, especially in the music business, where labels and licensing deals meant razor-thin profit margins. As one employee put it, "You have to make it up with extreme volume, which is why you see Spotify going after every human being in the world." Rdio’s operating business went bankrupt in late 2015, as Pandora scooped up its intellectual property and some staffers in a $75 million deal.

Webvan—Incinerated By Infrastructure

In an age of same-day delivery of everything from laundry soap to snack foods, it’s hard to imagine that a startup promising to deliver your groceries within a precise window of time would hit the skids. However, in 1999 things weren’t so simple. To make its convenience model work, Webvan poured investments into automated warehouses, logistics software, and a fleet of vans to ferry the goods. The problem was that orders needed to be placed a day or more in advance, killing any opportunity for impulse buys and instant gratification. Although it raised $275.2 million from the likes of Sequoia and Softbank, Webvan couldn’t pay for its costly infrastructure when consumer demand failed to meet expectations.

Boo.com—Busted By The Bubble

Sometimes the early bird fails to catch the worm, especially if it’s consciously ignoring the best ones in favor of those just out of reach. So it was with Boo.com, one of the first entirely e-commerce companies aimed at selling major fashion brands online. It launched in the fall of 1999.

The idea was visionary, but the execution left much to be desired. The company burned through $135 million in VC funding in 18 months, all before releasing its first product. Once live, customers needed high-speed Internet connections to access the site properly. Pile on the fact that money was spent on advertising and promotion rather than product, and no wonder the company declared bankruptcy by mid-May 2000.

Aereo—Laid Low By Lawsuits

In 2012, Aereo launched a "TV-in-your-browser platform" that offered viewers in New York a way to watch live broadcasts in HD on any Apple device for just $12 a month. The idea proved so disruptive, it prompted a surge of lawsuits from media companies.

But not before television magnate Barry Diller and others jumped on board, investing a hair under $100 million in the promise it could scale to multiple cities and was as innocent as putting a pair of rabbit ear antennae on your TV.

Broadcasters weren’t buying Aereo’s argument, and the service went bankrupt after two years. To add insult to injury, the U.S. Supreme Court ordered Aereo to pay out $950,000 to broadcasters last April.

Has Laundry Services Startup Tooler Closed Operations?

 

 

Pigeon Household Services Pvt Ltd, which operates Delhi-based on-demand laundry services startup Tooler, seems to have ceased operations.

The laundry services startup had earlier said it would resume operations after February 15, 2016 but till date there is no sign of it.

Tooler’s Facebook and Twitter  pages continue to say that the startup is undergoing renovation and will resume operations after 15 February 2016. The message reads:

The website, however, does not say anything on suspending or resuming operations.

Queries sent to the company did not elicit a response at the time of filing the report.

A YourStory report said it has closed down for good citing a text message from one of the founders.

Tooler was founded in June 2015 by Himanshu Arora, Vishal Gupta and Sukanth Srivastav and offers its services in Gurgaon, Delhi and Ghaziabad.

In November 2015, the startup raised an undisclosed amount in pre-Series A funding from CASHurDRIVE founder Raghu Khanna and former Paytm executive Samir Gupta.

The on-demand laundry services space has seen considerable activity in the past few months.

Earlier this month, Jaipur-based on-demand laundry startup Urban Dhobi Services Pvt Ltd raised an undisclosed amount of angel funding from Delhi-based serial investors Vinod Bansal and Sanjeev Singhal.

In December 2015, on-demand home cleaning and laundry startup SBricks acquired facility management services company Melway for an undisclosed amount.

In November 2015 on-demand laundry service platform Flashdoor raised an undisclosed amount in angel funding from former Flipkart executive Sujeet Kumar, Flipkart chief business officer Ankit Nagori and Traxcn Labs, while Wassup acquired express laundry service provider Chamak for an undisclosed amount.

UrbanClap Shuts Down Laundry Services

 

UrbanClap Technologies Pvt Ltd, one of the top two home services provider, has shut down its laundry services barely six months after launch, two sources close to the matter told DEALSTREETASIA.

Urbanclap, a mobile-only platform, provides services across 75 categories in Delhi NCR, Bangalore, Mumbai, Chennai and Pune.

Till date, the Delhi-based company has raised almost $37 million in venture capital raising from Bessemer Venture Partners, Accel Partners and SAIF Partners. It also received an undisclosed amount from Tata Sons’ chairman emeritus Ratan Tata who backed the company last December in his personal capacity.

Earlier, the company offered a monthly-subscription for its laundry services but subsequently switched to day-to-day model around October 2015.

An UrbanClap’s spokesperson confirmed that the company had discontinued its laundry service but declined to offer further details. It is still providing dry cleaning services, according to its website.

The laundry service space has witnessed several vertical-focussed players joining fray in the fast-growing market. Urban Clap, on the other hand, is a horizontal player that straddles a wide range of on-demand home services. “As I understand, vertical players are better equipped to handle customer expectations as they are solely focused on one service compared to horizontal players,” said one of the source quoted above, who requested anonymity.

Also Read: India: On-demand home services co Housejoy strikes second deal in Feb, buys startup Orobind Fitness

Exclusive: India’s PickMyLaundry in ‘final talks’ to raise $1m from angel investors

Exclusive: On-demand Indian laundry startup Urban Dhobi raises seed funding

PickMyLaundry, a laundry-focussed startup that is also looking at raising an angel round, was one of the vendors for UrbanClap.

The market has also seen a few housing services players pivot to stick to the laundry niche.

For instance, Doormint, which launched in January 2015 offering on-demand electrician, plumber, carpenter, electronics appliance repair and pest control, now only provides laundry services. The startup is backed by Powai Lake Ventures, Helion Ventures and Kalaari Capital.

This space has also witnessed some consolidation play. Vertical service providers have, in some instances, also reported difficulty in getting funding compared to horizontal players. Mywash, which managed to get seed funding from Orios Venture, failed to attract VC investors.

In February this year, the startup was acquired by Amazon-backed Housejoy.

Hybrid laundry platform Wassup acquired Chamak for an undisclosed amount. Chamak is also backed by Kensington Capital, Index Advisory, Innosight Ventures, Calvert Investments and HNIs including Rajan Mariwala and Sandeep Tandon.

Around the same time, Zimmber bought hyperlocal marketplace Findyahan. Most recently, Housejoy acquired at-home personal fitness start-up Orobind Fitness Technologies.

The laundry services sub-segment, under the fast-growing on-demand home services space, has caught the eye of investors and has seen some deal activity too. Most recently, on-demand laundry startups PickMyLaundry and UrbanDhobi raised funding.

Snapdeal

 

First, watch this video:

 

Now watch these more recent ones.

 

 

 

“We work hard and party harder” – Snapdeal Employee. Spoke to soon.

Ola Shuts Food Delivery Business Ola Café

 

Exactly a year back, Ola launched it’s online food delivery business Ola Café and now it is no more. It seems Ola has shut down Ola Café as the tab does not appear anymore in their mobile app now.

Ola Café was not Ola’s main line of business – they had limited menu and delivered in very limited areas. On the other hand the competition had far more choices for the users. To scale up the operations for Ola Café, they needed to bring far more restaurants with comprehensive menu offerings and needed to cover far more areas.

To deliver food Ola used their partner drivers on the Ola Cab network, which seems to have not worked. Obviously, the cost of delivering food using a cab might have been much higher than a two-wheeler which is what is used by most food delivery boys.

Apart from this, Food-Tech space itself has been quite a difficult for startups. Even after 2-3 years of existence, most of them are burning huge amount of money. Funding has also dried up. Many smaller food-tech startups have already closed down and larger ones like Zomato and Tiny Owl have cut down their work force. This space is also seeing consolidation with smaller food-tech startups are getting acquired by bigger ones!

Now that funding has dried up, it makes sense for Ola to use the money more judiciously and focus on cab market, in which they are the market leader.

Micromax, Once A Rising Star, Struggles

 

 

A year ago, Micromax vaulted past Samsung Electronics Co Ltd to become India's leading smartphone brand. Today, its market share has nearly halved, several top executives have resigned, and the company is looking for growth outside India. 

In Micromax's slide to second place is a tale of the promise and peril of India's booming but hyper-competitive smartphone industry. 

India is the world's fastest-growing smartphone market. Shipments of smartphones jumped 29% to 103 million units last year. 

Rapid growth has helped nurture a crop of local brands, led by Micromax, that outsourced production to Chinese manufacturers. Now, as Samsung rolls out more affordable phones, the same Chinese factories are entering the Indian market with their own brands, depressing prices and forcing Indian mobile makers to rethink their strategies. 

"What the Indian brands did to the global brands two years ago, Chinese phone makers are doing the same to Indian brands now, and over the next year we see tremendous competition for Micromax and other Indian smartphone makers," said Tarun Pathak, analyst at Counterpoint Research in New Delhi. 

Management tensions

Micromax, which was founded in New Delhi by four partners in 2000 but only began selling mobile phones in 2008, built its market share by working with Chinese manufacturers such as Coolpad, Gionee and Oppo to offer affordable phones quickly. In 2015, it launched more than 40 new models. 

In 2014, the founders brought in outside managers to lead the company at a time when Micromax was challenging Samsung to become the largest mobile phone maker in India. 

But tensions arose soon after between founders and the newly hired executives, six former executives told Reuters. These conflicts undermined Micromax's attempts to raise funds for expansion, say former executives. 

Last May, Alibaba walked away from a mooted US$1.2bil (RM4.90bil) purchase of a 20% stake, citing a lack of clarity on growth plans, according to one executive involved in the discussion. Micromax co-founder Vikas Jain said in an interview with Reuters this week that the company and Alibaba disagreed on a future roadmap. 

Alibaba declined to comment. 

Former executives said the lack of fresh funding undermined a proposal by the new executives to move Micromax's research and design operations, which had previously been outsourced, in-house. The move was intended to help Micromax differentiate itself from generic Android clones. 

"We hired about 80-90 people in Bangalore to do in-house software and design, but with no money from the investors and little interest from the founders, that team fizzled away and that office has been partially shut down now," said a former executive. 

After Alibaba walked away, Micromax struggled to attract other investors who would have been key to Micromax's plan to invest in software R&D and hardware design. The company was forced to scale down the in-house R&D project, a top executive involved in the fundraising plan said. 

At least five senior executives have resigned since November. The latest was Vineet Taneja, chief executive since 2014, who quit last week. 

"The whole industry is suffering"

Meanwhile, Chinese handset makers, including Coolpad and Oppo, to which Micromax outsources its manufacturing, were sharpening their focus on India. Samsung, too, began to introduce more affordable models there. 

In 2015, Chinese brands doubled their market share to 18%, according to Counterpoint Research, taking away business from Indian budget phone makers such as Micromax, Intex, Lava and Karbonn. Indian brands' market share fell from 48 to 43% last year.  

"Right now the whole industry is suffering because of the Chinese phones," Jain told Reuters. "We have seen large write-downs happening on inventory in China, and that inventory is being passed on to India at a markdown." 

Chinese phone makers including LeEco, Xiaomi and Lenovo have also partnered with e-commerce companies including Amazon India and Flipkart to sell phones directly to consumers, saving on distribution and sales and reaching new online shoppers directly. 

In the final quarter of 2015, Micromax's shipments fell by 12.1%, against growth of 15.4% for the sector, according to industry tracker IDC. Micromax's share of the smartphone market fell to 13% in the fourth quarter from 22% at its peak in 2014, according to IDC. 

Micromax, which is privately held and does not disclose financial information, maintains it is profitable. Founders Jain, Rahul Sharma, Rajesh Agarwal and Sumeet Arora still control about 80% of the company. They have raised nearly US$90mil (RM367.99mil) from investors in the last five years. 

Facing competition from both Samsung and inexpensive Chinese phones, Micromax plans to increase production in India. Jain said that the company plans to double local manufacturing output from 1.5 million units to about 3 million units a month over the next six to 12 months. 

Already a top-10 brand in Russia, Micromax is seeking a partner to help it expand further outside India and diversify into televisions and tablets. 

"Micromax needs to diversify geographically and also needs to diversify product lines," said Neil Mawston, executive director of the global wireless practice at London-based research consultancy Strategy Analytics. How well it manages that diversification, Mawston says, will be key.

The Emerging And Disappearing Magical Food Tech Startups

 

2015 was widely touted to be the year of foodtech startups. TinyOwl is a case in point. Founded by 5 IIT Bombay graduates in 2014, it managed to garner 27 million USD in funds from Sequoia Capital, Matrix Partners and others, in just a few months. Snapdeal founders Kunal Bahl and Rohit Bhansal were among the early backers. But a few months later, things started to go wrong. The company tried to raise 50 million USD some time back. Discussion was on with South Africa’s Naspers and Food Panda. The talks failed, but they managed to get a lifeline of about 8 million USD from existing investors.
Nevertheless, by September 2015, they had let go of more than 200 employees. Harshvardhan Mandad, CEO and co-founder of TinyOwl, wrote in his blog post that the company had scaled back operational resources from 4 cities and would move to the e-sales platform to support customer needs.
Zomato, valued at nearly a billion dollars, has cut 300 jobs and shut its cashless payment in Dubai. The company had raised 220 million dollars from Temasek, Sequoia Capital and Info Edge.

To sum up the year 2015 in terms of investments and deals struck in the food tech sector: in April, it was 74 million USD, with a total of seven deals being struck. In August, this had dwindled to 19 million, with only five deals, and, by September, only a measly two deals had been struck. And Dazo had shut shop. More recently,Pepper Tap has closed operations in a few cities.
While there was initially a flurry of funding for online food tech startups, they are hard pressed to attract more funds to fuel their cash burning businesses. According to experts, this is a necessary and natural process of evolution, and, following the Darwinian theory, the fittest will survive.

And the key to survival will be the ability to bring about a consistent change in customer preferences. This could take a minimum of one generation, or ten years of push. This means that either you or your investors have deep enough pockets to tide over the rough and lean patches. And it doesn’t mean that you consistently churn out the same stuff. Foodies are a fickle lot. One has to have a real passion for the business, to constantly develop new tastes and change the presentation, in order to ensure repeat orders and to satisfy an increasingly consumerist society, eager for instant gratification in everything.
Among the other concerns in this business, the problem of plastic remains one of Himalayan proportions. Everything has to be disposable, as the joint family system has broken down and nuclear families with two wage-earners find it hard to train and retain domestic help. Unfortunately, the environment cannot dispose of plastic waste in the same time or ease with which we bundle it up in garbage bags. A few have tried using eco-friendly packing materials, but have had to give up because of escalating costs and possibilities of damage in transit.
What are the solutions for cash-strapped food tech startups? Merging with well-funded companies has always been an option. A case in point is Spoonjoy, which was “acqui-hired” by Grofers in recent times. Dealing in perishables will always be a risky proposition, as the margin for error is very narrow, and the tolerance is near zero. Only those who have the heart (and the stomach) for it will emerge victorious.