For some it might be a state of fear, for others it signals the future of the Indian startup ecosystem, which continues to witness companies collapsing one after another.
Yogendra Vasupal was arrested by the Chennai police on charges of fraud, and inability to pay dues after his company Stayzilla, a homestay and hotel aggregating startup, ran out of money.
Vasupal’s story is not very different from many startups who raised money when the market was ripe, but failed to sustain their businesses when the funding dried up, which eventually led to shutdowns.
Stayzilla shut operations a month ago, and Vasupal said that he will reboot the business. But, for that, too, he would need money. He confessed that he was chasing growth over positive unit economics -- a matrix which most startups fail to address. As a result Stayzilla ran out of funds.
That is also the case for many other startups, who grew on investor money, by offering discounts and special offers.
The e-commerce business is a classic case in point. And it is not for no reason why Vasupal has garnered so much support from the startup world -- most of them face similar problems.
Kunal Bahl, co-founder and CEO of Snapdeal tweeted: “Many startup founders, including myself, have seen the ugliness of getting on the wrong side of people with bad intentions.”
A quick look at Snapdeal will show that the company is going through its roughest patch. Its vendors have complained of dues for over six months. Kunal and his other co-founder Rohit Bansal has taken 100% salary cuts, and the company has laid off about 600 employees.
Bahl is a recent email confessed that Snapdeal was targeting gross merchandise value over unit economics and profitability, and that Snapdeal was trying to do, too, many things before getting the core business right.
Sachin Bansal, co-founder of Flipkart, too tweeted in support of Vasupal, and even urged the Prime Minister’s office to support.
“We stand together as entrepreneurs. @PMOIndia, #StartupIndia needs your support,” Bansal tweeted. His second tweet read, “Let the law take its course, but intimidation of Stayzilla founders crosses the line. It’s unhealthy for entrepreneurship in India.”
Flipkart, too, is struggling. Its valuation as per its investors is down to a third of its peak $15 billion. The company, according to widespread rumours is run by its biggest investor Tiger Global Management. Kalyan Krishnamurthy, Flipkart’s new CEO is a former Tiger executive.
Deepinder Goyal, CEO and founder of food and restaurant app Zomato retweeted Bansal’s comments. Zomato’s devaluation by HSBC, and its ups and downs have been widely reported in the media.
Mobile advertising platform InMobi’s founder Naveen Tewari tweeted, “Entrepreneurship is the future of our country; let us “save entrepreneurs, they will save India.”
InMobi is also not in its best shape -- rising losses and top level exits have plagued the company. However, to be sure, InMobi was India’s first unicorn, a billion-dollar company.
For many others, Stayzilla’s situation is a reflection of a weak business model. However, the startup world doesn’t believe so. P Narayanan, president of TiE Chennai said that Stayzilla is an “icon”.
India Angel Network issued a statement where it said putting Vasupal behind bars was shocking for the startup community, and that the act will “trigger fear in young minds” and put the brakes on the StartupIndia initiative. “There are challenges in every business and startups have more than their fair share. It is imperative that the legal and regulatory framework supports and encourages new ventures to emerge and scale,” the statement said.
In all probability, Vasupal might have been wronged, and at best the matter could be a “civil matter”. However, at the end the truth remains that his business model was not sustainable, and Stayzilla was not working on the right unit economics, and he failed to repay his dues.