Something is not well with the food technology startups in the country.
Bringing to the fore the bitter reality about the Indian startup ecosystem, a report in TechCrunch has said that TinyOwl, a India-based restaurant delivery service, has stopped service in all cities except for Mumbai.
The report said users of TinyOwl’s smartphone app started seeing a notification last week that service will be discontinued after May 22. Apart from some areas in Mumbai, where it has its head office, the notification was visible everywhere.
— Pranjal Choudhury (@pranjal_1981) May 14, 2016
TinyOwl recently hogged the headlines after it ran into operational troubles despite support from marquee investors. The company faces issues like an oversaturated market and high cost of logistics.
TinyOwl, which has raised $23 million from investors including Sequoia Capital, has dried up most of its money. Experts say though many well-funded startups started off quite nicely, they failed to take it to the next level.
The company was also in news as it began its first layoff in September last year in which the start-up offloaded around 160 employees. Then on November 3, it laid off 112 employees in Pune, Gurgaon, Chennai and Hyderabad. However, when Gaurav Choudhary, the co-founder of TinyOwl, went to Pune to oversee the layoffs and the shutting of the Pune office, he was not allowed to leave the premises. He had called the police, claiming that he had been kidnapped, whereas the employees called local politicians to intervene on their behalf.
According to Medianama, employees of the company leveled a series of allegations against the management:
* They offered us post-dated cheques, though previously laid-off employees had yet to receive their payment.
* General Managers with only 6 months of experience were hired and paid close to Rs.22 lakhs per annum.
* The start-up splurged recklessly and vendor payments are pending.
* The company had spent Rs.1 crore on marketing in one city for a month, across all 6 cities.
For TinyOwl, it was a clear case of too many cooks in an overcrowded kitchen. Nearly 80 food delivery startups sprouted a year back were reduced to only 10.
The competition from “two or more players going after the same set of customers and offering discounts” hurt profits, according to an April report by Kotak Institutional Equities. When they stopped offering discounts, customers disappeared.
A major reason for this was many startups not getting enough revenue per order to cover the cost of food, much less delivery expenses. According to Deepinder Goyal, founder and chief executive officer of Zomato, a restaurant search and delivery service, some companies have blown away money on highly unprofitable models.
For TinyOwl, there is still a ray of hope as reports say the startup will merge with logistics firm Roadrunnr in an all-stock deal and create a new food delivery service called Runnr. The two companies, which are both backed by Sequoia and Nexus Venture Partners, have yet to officially confirm the deal.