2015 was supposed to be the year that food tech startups would rule supreme. While this has been true for some markets, places like India have seen dramatic failures. Two of the biggest food startups in the country, TinyOwl and Zomato, have been making headlines recently but not reasons favorable to the companies.
The most recent incident involved Gaurav Choudhary, co-founder of startup TinyOwl. Workers laid off earlier this week apparently held him hostage inside the company's Pune office for two whole days. Times of India reported that a previous lay-off happened in August and employees were assured that it would not be “replicated.”
Deepinder Goyal, founder of search portal Zomato, also sent an angry email to the sales staff about missed sales targets. The email has since been leaked to the media and has made headlines. The incident comes just weeks after the company laid off around 300 employees, or 10% of its workforce.
Pankaj Jain, partner at venture capital firm 500 Startups, told Quartz that “In the first half of the year, every day there were food delivery or grocery delivery companies that were getting funded, and in many cases they were raising very large amounts of money. I think everyone has now come to realize that those are fundamentally flawed businesses.”
Jain recalled how there was a “mad rush” to pour capital into food technology during the first months of this year. He added, “It was like ‘hey, they invested in a food tech company; we don’t have one in our portfolio, we must get one in our portfolio, too.'”
The CEO of New York-based research firm CB Insights, Anand Sanwal, was quoted in saying, “It is one of those sexy spaces where people think ‘everybody needs to eat and so this must be a trillion-dollar market’. But they don’t realize how difficult it is to crack the code here.” He added, “You and I could put up a website; somebody will order and we can run around and make the first deliveries ourselves if need be. In the beginning, it can be a technology-light business but eventually it needs to be pretty rigorous and significant.”
So what is the end result of this bursting bubble? Jain shared, “There is going to be consolidation, there are going to be shutdowns, and there are going to be layoffs. The sector got overfunded and now it’s all getting pulled back.”
