HSBC Slashes Zomato’s Billion Dollar Valuation By Half

 

In less than a week after Fidelity Rutland Square Trust II and Valic Co. marked down their stake in Flipkart by 20%, it is now the turn of HSBC’s brokerage arm to slash down the paper valuation of restaurant-discovery platform Zomato by 50% to $500 Mn from the earlier valued $1 Bn.  This is about half the valuation at which the restaurant search firm raised its last round of funding in September.

HSBC Securities and Capital Markets in a detailed report, titled ‘India Internet – Lot of Growth but Slim Pickings’ raised  concerns surrounding Zomato’s advertisement-heavy business model, growing competition in the food ordering space and money-losing international operations for the lower valuation. The report stated,

“Zomato is present in 23 markets so early on and none is profitable, which implies that to address both the investments in last-mile delivery and losses in international operations, fund-raising will be a continuous phenomenon, suggesting current valuations don’t make much sense. We do a discounted cash flow (DCF) analysis and value the business at 50% lower to the $1-Bn valuation.”

InfoEdge which holds nearly 50% in the Gurgaon-based Zomato and also runs sites like Naukri.com, 99acres and Jeevansathi, among others, however disagrees with the markdown. In a statement to Mint, Sanjeev Bikhchandani, founder and executive vice-chairman of Info Edge, said, “We respectfully disagree with several of the points raised by the HSBC report. Zomato’s “revenue has more than doubled in the last nine months and continues to head north at a good clip. Costs have been rationalized and burn is down by more than 70% from the peak. The company has plenty of cash and its unit economics are really good.”

Interestingly, in the same report, HSBC has also lowered the valuation of another InfoEdge investee company, PolicyBazaar, by 10% from the current $200 Mn.

However, the note by analysts Rajiv Sharma and Darpan Thakkar have a negative view and explain in detail why the brokerage firm affected the markdown. The notes say, “Competition will always find it easy to take share via other routes, particularly online last-mile delivery model. We understand that last-mile delivery is not easy but unless Zomato leads in this space it will find it tough to retain market share. Particularly, we have Swiggy in India which is very active in the space and has been getting funding at regular intervals.” As per the analysts, restaurants that pay for advertising only account for around 6-8% of Zomato’s overall database and the nascent online food ordering business will take time to develop into a strong revenue stream.

Meanwhile Zomato also disagrees with the brokerage firm’s negative view. Founder Deepinder Goyal has come up with a detailed blog post titled Unicorn Or Not in which he spoke about Zomato’s GMV, ad sales profitability, and refuted arguments made by the report.

The notable points from the post are-

• Our traffic in India, our home market, also grew 8% in April 2016 over March 2016.
• We are currently present in 23 countries, and we are the market leaders in 18 of them.
• We are able to divert traffic to transactions businesses (ordering, and table reservations) without any additional customer acquisition cost
• We hit 33,000 online orders yesterday – at our average order values, it makes us the largest player (and only profitable players on a unit economics level) by GMV (there’s a blog post coming soon about our food ordering economics).
• We already are profitable in the order business at a unit economics level, and the overall online ordering business will hit profitability when we get to an average of 40,000 orders a day. We should get there in the next 3-6 months.
• We are monetising the traffic in Australia already, and Melbourne and Sydney are already in the top 5 revenue generating cities for us across the world.
• We have significantly healthier margins in our ad sales business than pretty much anyone most people know.
• Our revenue has doubled over the past 9 months. Costs have been rationalised. Burn is down 70%from the peak.
• More than 95% of the restaurants in our core markets have yet to be monetised. Mobile, which is over 50% of our traffic, is yet to be monetised seriously – the new product which will be out before the end of the May will completely change the face of mobile app monetisation for us.
• Fifteen out of the eighteen countries where we are traffic leaders are yet to see serious monetisation efforts.
• We are aiming to hit overall profitability (without compromising on growth) at an overall company level in the next 6-12 months

Deepinder added,

“Nobody who knows our business has marked down our valuations. In fact, our existing investors are bullish about us, and are willing to back us further, if needed. And they have categorically said that our valuations are justified. Especially because we are more than doubling year on year, and the next year looks even more exciting for us. But external perceptions of valuations are determined by the state of the market, and the availability of facts to the person who is analysing these numbers.

In the last round, Zomato raised $60 Mn funding in September 2015, largely from Singapore’s Temasek Holdings Pte and existing investor Vy Capital, with the company being valued at about a billion dollars. The company, in which Info Edge owns about 47%, has raised about $225 million since inception in 2008. The markdown interestingly follows a spate of rough events at Zomato, which since the last year, has had to lay off 300 employees as it restructured its business, close operations in a few citiessuch as Lucknow, Kochi, Indore and Coimbatore, and even saw top talent leaving the company. The company ordered the food ordering segment in April 2015 last year and has been fighting it out with competitors such as Bangalore-based Swiggy and Rocket Internet-backed Foodpanda to gain market share in a category which has very high user acquisition costs.

Food technology sector has been witnessing a lot of churn with slowdown in funding and many startups either shutting down or getting acquired or downsizing as capital becomes scarcer. Case in point being food-tech startups Dazo and Eatlo which shut down operations last year and Internet-first kitchen Spoonjoy, which scaled down its operations in Bangalore and shut down in Delhi. Similarly, Foodpandareduced its workforce by 15% in December in order to move towards profitability combined with adjustments to its business model. Likewise, TinyOwl fired around 160 employees last year, shutting operations in four cities.  It is said to be in talks with B2B online service provider platform for hyperlocal logistics services Roadrunnr for a merger.

The battle in the food ordering space now looks limited to three players—Zomato, Swiggy, and Foodpanda. And if latest findings from Gigato, a mobile app and platform that allows app publishers to reward its users based on the data usage incurred on the app, are to be believed, Foodpanda dominated the food delivery space with 57 % people using the app to order food, followed by Zomato at 14% and TinyOwl at 12%.

Risk from formidable competition is something the report also stressed on. It said, “If companies in the online food delivery business, in particular, gain market traction, Zomato.com’s advertising business model could lose business. As a result, we think the company needs to develop a profitable online delivery business itself (and not outsource) at least in its top markets to complement restaurant search. This implies that Zomato.com will have to keep raising funds and investing for some more time to come, which would dampen profitability for a couple of years,”

In his blog post, however Deepinder allays these fears saying Zomato is far from done. He says, “ There’s something that we say often – “we are only 1% done”. We are truly 1% done, and if we continue to focus on execution, the noise will die down very soon.” It will be interesting to see Zomato’s 99% as the battle in the food ordering space intensifies.

Bangalore Based Fashion Etailer Fashionara Shuts Down Operations

 

Bangalore based fashion etailer, Fashionara, has shut down its operations. The company was founded by former Reliance Trends CEO Arun Sirdeshmukh along with Darpan Munjal, former chief technology officer at Times Internet Ltd, in 2012.

The company’s website is not working since last week and there has been hardly any update on the social media channels from a couple of days except from the automated scheduled tweets.

Co-founder Darpan Munjal had left the company in January this year, as confirmed by him. He is currently operating Squadhelp.com, a Crowdsourcing platform helping startups and businesses across the globe building memorable brands.

The company was backed by Lightspeed Venture Partners and Helion Venture Partners, and had raised over $4 Mn Series A. There were also news about the startup raising $7-8 Mn in year 2014 and shifting to a marketplace model from being a pure-play fashion portal.

Messages sent to Arun did not elicit any response, however, in an emailed response, Bejul Somaia of Lightspeed said, “Lightspeed exited its position some time back and are no longer an investor so we can’t comment on your email. Suggest you contact the company directly.”

The company’s net sales jumped five-fold to INR 32.86 Cr. in the financial year 2014-15. But its net loss widened to INR 32.13 Cr. from INR 21.11 Cr. in 2013-14.

It had a 25,000-sft central warehousing facility in Bangalore from where it ships out the products to key cities like Delhi, Hyderabad, Mumbai and Pune through various air and on-the-ground logistic tie-ups.

The portal was initially focused upon categories such as apparel, footwear and accessories. In early 2014, it introduced  F.Lea Bazaar, where it enabled selected sellers from the flea markets across the country to retail their products on its portal.

Later in 2015, riding on the wave of growing smartphone and internet ecosystem of the country, it came up with its mobile android app with the flash sale model. Flash Sales implied for sale events where limited number of products are available for limited period at deep discounts. Some of the brands that can be bought on Fashionara under these events included Red Tape, Von Dutch, Biba, Clarks, Twillory, Puma, Levis and many more.

In the same year, it also entered into the home furnishing market, along with Flipkart and Snapdeal, with the launch of 36 brands, 7500 products across 7 new categories.

It was competing with portals such as Flipkart, Snapdeal, Myntra, Jabong, Koovs, etc.

AskMe Sees Exit Of 650 Employees

 

AskMe, a hyper local businesses-focused internet firm, has seen resignations from 650 people across its 40 offices in India. Most of the employees who were let go were in the annual salary bracket of Rs 2.5 lakh-Rs 6 lakh.

According to sources, the company, which is backed by Helion Venture Capital and Malaysia's Astro, is running out of funds. Reports earlier suggested that AskMe's monthly cash burn was more than $6 million.

When asked about the resignations, the company said: "It's the beginning of the new fiscal year and we continue to increase our productivity across functions through automation and better processes as in previous years. We continue to hire talent where required."

Several AskMe employees told their annual appraisals were delayed this year. "We worked hard the entire year and we are let go without the pay we deserve," said an employee.

Some of the employees in Kolkata staged a protest. However, all they could get in return was a promise that their final pay would be released within a week.

Getit Infomedia (AskMe's parent company) has promised the employees they would be given a month's salary as severance payment. Some were told that they might get another job within the group or outside.

"Astro, which holds a majority share in the company, is seemingly no longer interested in funding Getit Infomedia," said an employee who survived the job cut. The employee said the last time Astro invested over Rs 150 crore in Getit, it had to jump through hoops but since then the group company has struggled to establish a foothold in the market. Helion has not shown any interest in doing a bridge round either. "The management has been shopping for other VCs but no one has shown any interest. More resignations may follow," an employee said.

Earlier, the company officials had told Business Standard, they were trying to raise $200 million from Chinese giants Alibaba and Baidu.

One of the reasons VCs have shown no interest is AskMe could be its foray into the grocery business, a source said.

AskMe grocery has a presence in 38 cities with 23 centres in Mumbai alone. It follows the Grofers-PepperTap business model of sourcing products from local retailers.

AskMe was in hot water recently when a furniture maker accused Mebelkart, a Getit Infomedia company, of defaulting on payment of Rs 28 lakh and selling brand imitations.

Established in 1986, Getit was a print-based classifieds company. Astro had made a significant investment in the company in 2010 and again in 2014. In 2013, Getit acquired AskMe from Network18. In 2015, it made two more purchases in the form of Bestatlowest and Mebelkart.

PepperTap Fate Shows Why E-Tail Can’t Live On Discounts?

 

Early April, a journey that started in thea summer of 2014, was about to end. Co-founders Navneet Singh and Milind Sharma decided to shut down PepperTap, India’s third largest e-grocer. They didn’t have an option.

PepperTap was losing money on every order due to discounts, which went as high as 70%, and there were no signs of profitability or more funding.

“Who will give $100 million? The investment climate has changed from what it was a year back. There is no visibility on the next round of funding,” Singh told HT, adding that PepperTap didn’t even look for more money. Not even from Snapdeal, which led PepperTap’s last funding round of $40 million (`260 crore) and hoped to integrate the business.

PepperTap wanted to revolutionise grocery buying – freedom from queues, no parking hassles and no haggling. It was simple— create a marketplace for people to order food online and Singh’s foot soldiers would collect the goods and deliver it within two hours. The plan, however, did not work to script (see box).

Singh could have moved to an inventory-led model from the marketplace model, which works well on scale and requires a lot of money, according to Singh.

Vipul Parekh, co-founder of BigBasket, thinks the other way. “Grocery can only be done if it is inventory-led,” Parekh had told HT earlier. Grofers, too, has shifted to an inventory-led model. Grofers has raised $120 million and Big Basket $150 million in their latest funding rounds.

Some companies, meanwhile, have adopted a tweaked marketplace model. Zip.in, a hyperlocal marketplace in Hyderabad, accumulates orders before noon, purchases them from wholesalers and delivers them later. “Aggregating orders gives us better margins,” said Kishore Ganji, CEO of Zip.in.

Before PepperTap, LocalBanya, Flipkart, Paytm and Ola Cabs have closed their e-groceries. However, Morgan Stanley estimates the sector can grow to $19 billion (`1.25 lakh crore) by 2020, smaller than only electronics and apparels. The report also cements BigBasket’s business model: “BigBasket turns inventory 40 times per year versus 7-8 times for an offline player and has 97.3% on-time delivery.”

Meanwhile, Singh has “a significant amount of money” from the last funding round in the bank. He will use it to build his new logistics venture. But, Snapdeal will have to find a new partner for its grocery dream.

PepperTap shuts down

 

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.