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TinyOwl job cuts point to stress in food tech

TinyOwl plans to restructure itself and cut costs as pressure from existing investors mounts

Food-tech start-up TinyOwl Technology Pvt. Ltd has undertaken another round of job cuts and frozen expansion plans as it faces delays in closing its next round of funding, three people familiar with the matter said.

The move highlights the stress in the crowded food ordering market and, to some extent, in the overall start-up ecosystem as investor interest starts to ebb.

Thus far this year, investors have pumped $150 million into 20 food-ordering (and food-delivery) start-ups this year.

TinyOwl plans to restructure itself and cut costs as pressure from existing investors mounts, the people cited above said, asking not to be identified. The company had already fired more than 100 employees in the business development team in late August and plans more cuts in its workforce, they added.

The people said talks for a fresh round of funds with potential investors are taking time because of differences over valuation.

TinyOwl co-founder and chief executive officer Harshvardhan Mandad denied that the company has a hiring freeze or is looking to lay off people. “We are hiring senior-level people across departments,” he said.

According to Mandad, the company has only frozen its expansion plans. “We are currently in six cities and have no plans to expand into newer cities in the next three to six months. We want to focus more on winning in the markets we are present in,” he said.

The company has completely outsourced the last-mile delivery business to partners such as Roadrunnr, Opinio and Shadowfax.

According to Mandad, this would help reduce the cost by almost 50%.

As an outcome, around 80-100 people the company had hired on contract were asked to leave.

TinyOwl has raised roughly Rs.120 crore since last December, including Rs.100 crore in February, from venture capital firms Matrix Partners, Sequoia Capital and Nexus Venture Partners.

The Mumbai-based company used these funds to expand into new cities, discount heavily to acquire customers, hire people and reinforce technology.

Now, it needs more money to survive.

TinyOwl’s problems are not unique. Restaurant discovery and food ordering company Zomato Media Pvt. Ltd said recently that it will cut less than 10% of its US workforce.

Over the past month, SpoonJoy, a Bengaluru-based food ordering app, shut operations in Delhi, while Dazo, a TinyOwl-styled app, said it would wind up operations.

Both Dazo and SpoonJoy were backed by some impressive names.

Dazo’s early investors included Amazon India chief Amit Agarwal, Google India chief Rajan Anandan, TaxiForSure’s Aprameya Radhakrishna and Alok Goel, the former Freecharge chief executive who recently joined venture capital firm SAIF Partners after Freecharge was bought by Snapdeal.

SpoonJoy is backed by Flipkart co-founders Sachin Bansal and Binny Bansal as well as Abhishek Goyal, the co-founder of Tracxn, a company that provides data on start-ups.

The problems in food-tech (as the sector is ambitiously called), in turn, point to a broader slowdown in start-up funding.

The rush of funding is ebbing after a year-long period that saw investors pouring in billions of dollars into Indian start-ups, Mint reported on 24 August.

This slowdown will hit start-ups in overcrowded sectors, investors said, and several of these companies will either fail to get higher valuations in their next rounds or not find fresh funds altogether, leading to cost cuts and consolidation over the next one year.

Food-tech companies will not disappear, analysts say. There is a large market for home deliveries in large cities. And as specialty logistics firms build their hyperlocal network and take care of deliveries, food ordering is bound to grow and become more viable.

That will help companies such as TinyOwl which, along with Swiggy (owned by Bundl Technologies Pvt. Ltd), is the early market leader in the food ordering business.

“This space will evolve but before that there will be consolidation among existing players and more failures,” said Harish H.V., partner at consultancy Grant Thornton India. “This is an operations-heavy business and there are many challenges around payment collection and charging restaurants, apart from difficulty in building a brand in such a crowded sector. Because it is a new business, for start-ups to succeed they will have to learn a lot more about what works and what to avoid.”

This article appeared in Live Mint on 21st October, 2015.