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Startup Corner | ShopClues' woes point to a bigger malaise unfolding in venture world

The famed startup story is showing cracks. Once a leader in unbranded products, ShopClues is an example of how lack of foresight and complacency can affect a business

July 23, 2019 / 09:48 AM IST

It was a fairy tale beginning for ShopClues, an e-commerce startup that showed all the promise of becoming a unicorn. Investors were upbeat and even an initial public offering was in the works.

But then fortunes changed.

The layoff of nearly 200 employees last week is a symptom of its problems. The chances of the startup going belly up are real, according to a Business Standard report, because of its inability to find fresh funds or a buyer.

The early euphoria did not last long for the founders of ShopClues. It was after demonetisation in November 2016 that things started going downhill for the e-commerce firm that dominated smaller towns with its portfolio of unbranded products. Initially, the founders did try to mop up funds, but met with little success. Next, they drew up a plan to sell the company to its ailing competitor Snapdeal. But the deal talks went nowhere and fell through.

ShopClues has been the leader in the unbranded space, banking on its primary customers in smaller cities in tier III and IV areas. Early on, ShopClues targeted tier II cities to tap first-time online buyers, without any promise of one-day delivery. It also kept product prices below Rs 1,000, which all worked.

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You may then ask, how exactly did ShopClues lose its way?

It happened with the entry of the likes of Amazon and Flipkart, which went for the kill in tier-II cities, equipped with a strong weapon of better logistics support.

There are two issues that let down ShopClues -- first, logistics and second, inventory management.

The founders failed to clean up the mess, which pushed existing investors to the exit. Potential investors stayed clear.

Raising money was not this difficult for companies like ShopClues a couple of years ago. Investors were more open to playing ball and betting on underdogs. Of course, these are changed times, and investors are turning more and more cautious.

According to Venture Intelligence data, investors pumped in $3.9 billion into Indian startups during the first six months of 2019. These are essentially early stage investments to series-F stage of funding. That compares with total investment of $2.7 billion during the first half of 2018, and $1.8 billion in January-June of 2017.

No, the market is not tight fisted when it comes to capital investment. It’s just that investments are getting filtered. Over the past few months, companies like Ola, Oyo and Byju’s have raised funds at considerably high valuations. Plus, there have been mega deals like Walmart’s acquisition of Flipkart.

ShopClues is not a lone case. Treebo Hotels has cut down staff strength by around 20 percent as the funds tap went dry. Logistics firm Rivigo, despite raising money recently, has handed over pink slips to close to 100 employees.

If the trend continues, the headlines could be more ominous. Market observers are already talking about likely closure of a bunch of startups, especially the copy-cat e-commerce firms. The sad part of the story is that employees may have to bear the brunt.
Sounak Mitra is an Associate Editor, Moneycontrol. He has been writing on corporate issues and policy for more than 15 years, having previously worked with Mint, Business Standard, Mergermarket, The Telegraph and The Times of India.

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