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.