Vol.

III, N o. 47, 11 December 2015

When you think there is nothing left to improve on, your business dies, for there is no shortage of
innovators Bangambiki Habyarimana

Are Food Tech Start ups in Darwinian World ?

The start-ups are on Fashion Street of Business World. But its dark shadow is also behind it. The cash hungry food tech
startups are pivoting to new business model to survive in future. Last two years the
food tech startups were celebrating their tremendous growth. In last year 31 food tech
startups were able to rise seed funding or angel funding but only five out of these 31
start ups are able to raise series A funding. The mushrooming of food tech startups in
last two years by cash burn discounts to its customers. When too many startups started
doing this only then the downturn in food tech start ups was actually felt. Recently so
many failure stories of food tech start ups were in media attention too. Eatlo has funds
to survive for 9-12 months. The Foodpandas struggle is also well documented.

In the beginning month of November 2015, Tinyowl the 21 month old company
announced that 2015 Diwali is going to be a dark diwali for 40 of its employees. At the time of festive season when everyone
was getting Diwali bonus, these employees were given post dated cheques and nice words it was nice working with you;
move on!. The company which hired 80 people in the month of May 2015 got out of control in three months and fired half
of its workforce in August 2015 and rest half were asked to leave on 3rd November 2015. When the company was trying to
scale down its operations in Pune, then one of its co-founder Gaurav Choudhary was kept hostage for 48 hours demanding
settlements. TinyOwl is food tech company. Another Banglore based food tech company, Dazo shut down its operations
recently.

A company like spoonJoy having Sachin Bansal as star investor has been merged with Grofers which is a hyper-local grocery
and fresh food delivery company. The facts of Zomato are eye-opener. The company which grew inorganically and marked its
presence in 23 countries has recently fired 300 of its employees and shut down its cash less business in Dubai and it was
having revenues worth Rrs.100 crore in 2014-15. Smaller start-ups like Mealme, Tumm Tumm and PotJoy have either downed
their shutters or are shifting to new business models. One of the hottest sectors of 2015 fetching $ 177 million of investment
by October 2015 seems to be near to the bust. Some experts are calling it Food Tech Bubble and others say it is a mere
correction. According to NASSCOM (2015), the growth rate in number of private equity, angel investors and venture capitalist
in Indian market is by 100 percent and collectively they have pumped $5 billion in India based start-ups. In other words,
every week there is $ 100 million in flowing into start-ups. The country has nine unicorns today-start ups with valuations of $
1 billion including Zomato. The Indian investors are investing on the basis of prolongation of existing trend and are betting on
stocks with rising prices which is basically a momentum strategy. The astronomical valuation of food tech companies is also a
reason of every now and then failure story of food tech start ups. The industry expert also say immaturity of founders,
incapability of talent retention, poor performance by sales teams, extra cash burn on advertising and discounts, low ticket
price and poor financial discipline are also among the reasons of failures of these startups.

It can be an alarming signal for other sectors too and gives a clear message that only a few will survive in each vertical. The
consolidation phase in food tech start ups have already started and these start ups must have to identify new innovative
business models in place of the three common business models used by majority of them. And investors are advised to
refrain investing in food tech start ups for next two quarters to see whether correction occurs or bubble bursts

Buzz @ Chitkara Business School

Business World ranks Chitkara Business
School 38th among top Private B-Schools of
India in B-School Survey 2015

Written by: - Dr. Renuka Sharma

Faculty of Finance, Chitkara Business School
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to its accuracy. Chitkara Business School will not be responsible for any interpretations, opinions generated or decisions taken by readers.