Dec 6, 2023

December 6, 2023 Prosus, holding a substantial 19.4% stake in the company, wrote off its $38 million investment, further contributing to ZestMoney’s difficulties and reports indicate that over 100 employees were let go during the transitional phase. In July, ZestMoney raised approximately $7 million in seed funding to continue operations under new leadership. However, these funds proved insufficient for sustained operations. To date, ZestMoney had raised $125 million, including debt financing, closing its Series C round at $58 million in September 2021. In the broader context, the Indian startup ecosystem has witnessed three shutdowns in the past two weeks. Akudo , a teen-centered neo-banking platform, also announced its operational wind-down this month; the shutdown is a response to the Reserve Bank of India’s directive forbidding Unified Payments Interface (UPI) in co-branding arrangements. Akudo, primarily focusing on UPI and card business, has ceased onboarding new users and notified its PPI issuer LivQuik and infra partner M2P Fintech about the impending shutdown. Regulatory challenges and financial constraints have impeded Akudo’s ability to raise new capital. The teen-focused neo-banking space, though in a nascent stage, has seen regulatory challenges impact various players; while Fampay raised $43 million, it faced difficulties in acquiring users and securing new investments. CheqUPI and Fampay managed to continue operating despite the regulatory changes; however, the sector is expected to take a few years to reach a substantial scale. Another joining the list, Anar, the B2B networking platform backed by Elevation and Accel, has also decided to cease its operations, as announced by the company’s founder and CEO, Nishank Jain, on X (formerly Twitter). The startup, unable to establish a sustainable business model, will return the remaining capital to its investors. In September 2021, Anar raised $6.2 million in a seed round co-led by Elevation Capital and Accel India, with participation from First Cheque, Utsav Somani, and founders of ShareChat, Meesho, and BharatPe. Despite garnering significant user appreciation, particularly from the seller side, Anar faced challenges in providing sufficient solutions for sellers. The platform experimented with networking, leads, and various transaction methods but failed to achieve a significant impact; Jain acknowledged that the fundamental issue was that sourcing was not a top priority for retailers. Launched by Jain and Sanjay Bhat, Anar aimed to assist small and medium businesses (SMBs) in building networks across omnichannel. Users, including retailers, resellers, wholesalers, distributors, and manufacturers, could create profiles, upload catalogs, make posts, establish connections, post requirements, and interact with each other. Jain noted that Anar observed low retention rates and a lack of perceived value among buyers. The startup’s financial performance in FY23, its third full fiscal year since its official launch in February 2020, reflected negligible revenue and Rs 17.32 crore in losses, according to startup data intelligence platform TheKredible. Anar joins the ranks of several startups that have recently announced closures due to funding challenges and other reasons. Notable among them are cosmetics brand Belora, teen-focused neo-banking platform Akudo, as well as Vah Vah, OSlash, FrontRow, and three gaming apps—Fantok, One World Nation (OWN), and Quizy. The Viewpoint The growing list of startups facing funding challenges and shutdowns indicates the complex and competitive nature of the startup ecosystem. 1. Funding Scene Startups rely heavily on external funding to fuel their operations, especially in the early stages; however, shifts in investor sentiment, economic downturns, or market conditions have led to funding challenges. As seen with startups, even with initial investment rounds, sustaining operations over the long term can be demanding. 2. Business Model Experimentation Startups often embark on a journey of trial and error to discover a viable and scalable business model- this experimentation, while crucial for innovation, can also pose risks. If a startup fails to identify a model that resonates with customers and provides sustainable revenue, it struggles to attract subsequent funding rounds. 3. Market Dynamics Rapid changes in market dynamics, technological advancements, and regulatory shifts can catch startups off guard and those unable to adapt quickly may find it challenging to stay relevant and competitive, leading to financial strain. 4. User Value Proposition Building a product or service that genuinely addresses a market need is essential. If a startup fails to deliver sufficient value or struggles to align its offerings with the evolving needs of its target audience, user retention and growth become significant challenges. 5. Regulatory Environment Regulatory changes, as seen with Anar and others, can have a profound impact on startups. Compliance with new regulations or shifts in industry norms may necessitate significant adjustments in business strategies, adding an additional layer of complexity. 6. Operational Efficiency Efficient operational management is critical for startups , especially in terms of controlling costs, optimizing resources, and achieving milestones within budget constraints; any inefficiencies in operations can strain financial resources. The Last Bit, the challenges faced by startups in securing funding and the subsequent closures, illustrated by ZestMoney and others, stress the problematic nature of the entrepreneurial journey. Further, the interplay of market forces, business model intricacies, and the need for constant adaptation are the keys to startup success or failure, which results in the inevitable shutting down of operations. Tags