Aditya Narayan Giri joined agritech startup DeHaat’s Patna office on March 17, 2022. The company assigned Giri the responsibility of developing model farms in five states: Uttar Pradesh, Odisha, West Bengal, Jharkhand, and Bihar.
Model farms are plots with a mix of crop species that support each other and create an ecosystem for the production of cash crops.
“I left my job in Haryana and joined the company primarily to stay close to my parents who lived in Patna. I could visit these farms regularly from my base location in Patna,” Giri said.
In about two months of joining DeHaat, Giri’s role was pared and he was asked to shift permanently to Bhagalpur, another city in Bihar, and work on the one farm, spread over three acres, in the city. He was refused the funds he needed to hire the employees he needed to work on the farm (the human resources department told him the company was cutting costs) and when he refused to move to Bhagalpur, was let go from the company
His email requests to talk to senior management were unanswered. The only time someone from DeHaat reached out to him was to offer to negotiate if he took down Twitter and LinkedIn posts sharing his ordeal.
“I took the posts down almost immediately, but I never heard from them again,” Giri added.
Giri is not alone in a story that has become another cautionary tale for ambitious startups that attempted to conquer new markets and grow rapidly only to come up against a funding winter amid global market turmoil this year.
How it unravelled
On the afternoon of August 1, Moneycontrol reported that DeHaat had become the latest new-age technology company to resort to layoffs.
The move to cut costs and fire employees came barely 10 months after the company raised $115 million in a round that saw participation by investors such as Sofina, Lightrock, Temasek, Sequoia, and Prosus, making it among the largest agritech fundings in India.
It also came on the back of a year of aggressive hiring by the company. According to a statement shared by the agritech startup, it had an employee count of over 2,000 out of which over 1,500 people were hired in the past 12 months.
In a virtual interaction with Moneycontrol on August 1, DeHaat’s co-founder and chief executive officer (CEO) Shashank Kumar confirmed that the company had let go of people, but said the number of such employees was not in the triple digits.
He also said the decision was made only as a corrective measure around performances and due to a “culture misfit.”
Employees of the company dispute the claims. Many say the number let go is between 250 to 300 and is still increasing. Some have even resigned, fearing being terminated like their colleagues.
According to Giri, the entire accounts team that was functioning from Patna was asked to shift to DeHaat’s Gurugram office.
One of the employees said that in July, his manager called to inform him that the company intended to transfer him to Gurugram. In the call, the manager told him he would risk immediate termination if he refused.
“Unfortunately, my manager who called me to inform me about my termination later also went through the same situation,” the employee said. When the manager refused to move to Gurugram, he was fired by the company, added the employee, who too was laid off in August.
Another employee said he had taken pre-approved medical leave from the company on July 28 and 29 for a surgery. On July 28, on his way to the hospital, his senior sent him a Google Meet link for a quick meeting. On joining the meeting, he saw many of his colleagues from Patna and other offices like those in Uttar Pradesh, on the call.
“The manager, to our surprise, told us that we were being let go. Some, who were hired especially for new warehouses that were to open in UP, were told that the projects have now been cancelled and hence their service was no longer required.”
Others like him from the Patna office were not given a definite reason.
According to him, on that day about 120 from the Patna office and over 50 from other offices were asked to move on.
“I tried to reason with him telling him that I can work from home, or take leave without pay. I even offered to cancel my medical leave, but none of it worked,” said the former employee.
A letter from the company denied that performance issues were the reason for the employee's termination. “I wish to assure you that your disengagement of service from the organisation is not related to your job performance,” said the company.
Moneycontrol reviewed a copy of the letter, which was sent to many who were let go.
In the letter, the company said the decision has been made due to an “unavoidable impact on business conditions, which has necessitated role restructuring.”
Dues remain unpaid
DeHaat said the employees would be paid salaries for their notice period of about 90 days within 10 days of their last working date.
The last working day for him was July 28. More than 10 days past the deadline, the former employee quoted above has only received a third of his dues after a series of emails to the company.
Many others have not received the amount promised to them yet.
DeHaat’s chief, Kumar denies the claims. “We strongly object to even a single case where settlement was not done properly. All the cases were dealt with full empathy,” he said in a response to the queries sent by Moneycontrol.
Kumar added that the company has made 80 new offers to potential employees to support DeHaat’s growth.
Zooming in on DeHaat’s model
Founded in 2012, DeHaat, a Hindi word for village or countryside, has built a full-stack agricultural model which hosts services ranging from distribution of agricultural inputs, customised farm advisory, access to financial services, and market linkages to sell farmers’ produce.
For its core verticals - farm input and output, the company has set up DeHaat centres with employees, generally on the company’s payroll, working as distributors and procurers to provide farm inputs such as seeds and fertilisers to farmers and collect yield from them to sell to buyers. An employee said that this also adds to the cost of delivery and transportation to and from the centres.
An investor tracking the space believes this added layer of intermediary might be affecting the company’s unit economics. “When you involve an intermediary there is definitely margin that you give up on, on both inputs and outputs. A basic thesis is that the more layers in between, the lesser will be the margin for each of them. The domestic market has very little margin anyway,” he said. Unit economics is a company's cost-to-revenue ratio on its basic unit.
He also added that the farther away the company is from the end beneficiary the lower will be the repeats and lifetime value generated.
In addition, he said that the startup needs to ascertain the level of non-linearity they are able to drive. He added, “If to do more business, they have to deploy more people, then they aren't getting the benefits and leverage coming out of technology and scale.”
Founded a decade ago, the company is still loss-making, DeHaat had a loss of Rs 54.2 crore on revenue of Rs 360.9 crore for the fiscal year ended March 2021, according to its filings with the Ministry of Corporate Affairs (MCA).
While the company’s revenue had more than doubled from the previous year, it incurred a similar surge in its expenses, widening its losses almost three times on a year-on-year basis.
Agritech startups like Ninjacart, Agrostar, and Absolute are among its competitors. Last year, Ninjacart raised $145 million, Absolute $100 million, and AgroStar $70 million.
Around the same time, in October 2021, DeHaat also raised $115 million in what was one of the largest funding rounds for an Indian agritech venture. The round valued the company at over $500 million.
So what went wrong?
Kumar, in the statement, said, “We have enough runway for more than 2 years since we closed Series D just 9 months ago when capital raised during Series C was still significantly unutilised.”
According to sources within the company, however, in less than nine months the funds raised by DeHaat have come down to a third. “At the beginning of the year, the company had around Rs 700 crores, it is now left with Rs 100-200 crores in the bank,” said a source.
A former senior-level employee of DeHaat said the company's ambitious and aggressive expansion was one of the main reasons behind the situation at the startup.
He said, “They were planning to penetrate into new geographies. Within their core verticals, they were planning on coming up with a B2C (Business to Consumer) model, and they were also expanding their export business.”
In the beginning of its operations, the company started out from Bihar, eastern Uttar Pradesh, and so on.
According to Kumar, while these older geographies were profitable, the company is trying to expand into new geographies that require some time before they turn profitable.
“We have started replicating the model to States like Maharashtra, Chhattisgarh, Gujarat, and Haryana in addition to existing states like Bihar, Uttar Pradesh, West Bengal, Odisha, Madhya Pradesh, and Rajasthan. Recently we crossed the milestone of 9,000 DeHaat centres and serving over 1,00,000 unique villages in about 150 districts of India and continuing to grow exactly as per our plan of reaching more than 15,000 DeHaat centres by March 2023,” Kumar said.
The investor tracking the space quoted above added that by chasing growth, the company might also be operating at a thin margin, as a result of which the burn is high.
In addition, the company has also made four acquisitions since 2019. In April, the company acquired food tech startup Y-Cook India Pvt Ltd for an undisclosed amount in an all-cash deal.
This came after it acquired agri-input marketplace startup Helicrofter in January to expand its presence in Maharashtra and the rest of western India.
In 2021, it acquired FarmGuide, which allowed the integration of satellite-based crop advisory solutions for farmers. In May 2019, the company acquired VezaMart, a platform that builds farm management solutions for farmers.
The struggle for funds
DeHaat needs the constant support of funds, to replicate its model in newer locations to grow exponentially and pay for its acquisitions, as the company hasn’t been able to generate cash from operations.
An investor of the company said DeHaat was expecting to raise a new round of funding soon to keep the operations running. However, multiple sources told Moneycontrol that owing to the current slowdown in funding to startups, the round has been delayed.
“Funding is not a problem for DeHaat, funding at the right valuation is the issue. So in this market, with profits not growing, and expansion plans not materialising, they aren’t able to raise at the current valuation,” said the former senior-level employee cited above.
During its last funding round in October, the company was valued at over $500 million, effectively entering the soonicorn or 'soon-to-be-unicorn' club. A unicorn is a startup valued at over $1 billion.
Due to uncertainty around the next fundraise, according to the former senior-level employee, the company’s expansion plans have not materialised. The investor with the company added that the cost-cutting measures by the company were an attempt to extend its runway before it can raise the next round of funding.
"DeHaat is absolutely on the track of yet another year with three times growth in all aspects - be it revenue or other network metrics like the number of DeHaat centres as well as farmers. We are poised to expand our last mile network of DeHaat micro-entrepreneurs as well as farmers to several geographies as per our plan,” argued Kumar.
Kumar, however, did not comment on the funding plans of the company.
Until now, the company has raised $162 million from a clutch of investors including Sequoia, Sofina, Lightrock, Temasek, Prosus, Omnivore, and Trifecta Capital, among others.
Less than a year ago, DeHaat was seen as a potential candidate to become the next big startup, the first from the agritech sector.It is now at the crossroads of a past boom and an uncertain future.