In March 2020, Cityflo was gearing up for its best-ever phase. The Mumbai-based bus commute startup had finally, after months of investor rejection, closed an $8 million funding round — far more than it had planned to raise. Summers are the best period for the company, as corporate employees flock to its air-conditioned services, abandoning local trains or their own cars.
But the best laid plans go awry, and how. This is the story of a transportation startup during the pandemic — the title of a horror movie, some would say — how it battled, survived, learnt lessons along the way, and is now looking to thrive. It is also the story of building a startup away from the limelight, building against many established principles of startups and venture capital, and how despite not being an outright success, it has made a noticeable dent in its space.
Founded in 2015 by IIT-Bombay graduates Jerin Venad, Sankalp Kelshikar, Rushabh Shah and Ankit Agrawal, Cityflo aggregates buses that ply between Mumbai’s suburbs and business hubs in the mornings and evenings. It works with bus owners on 4-5 year contracts and pays them monthly. Cityflo is trying to solve one of Mumbai’s (and arguably the world’s) biggest problems — traffic and the nightmarish experience of getting to office and back from the suburbs. Long, unmoving traffic jams and overflowing local trains are almost an ironic part of Mumbai’s culture
In an offline-heavy and disorganised industry, it is a hard problem. Cityflo (and others, such as Shuttl, in other cities) had to bring in quality, transparency, be affordable and on time — a notoriously hard problem in India — and do all this without a pile of venture capital to drive the effort. From 2015 to 2020, Cityflo raised Rs 5 crore from VC firm India Quotient, which was a paltry sum in the transportation industry and for internet startups in general. Its focus is corporate officegoers, who are ready to pay the Rs 160-200 that Cityflo charges per trip.
But even in a single city with a single focus — commuting — Cityflo has loyal customers and observers are bewitched by its efficiency. In Hiranandani Estate, a gated community in the suburb of Thane, also Cityflo’s headquarters, people go for morning walks. Many of them say that when they see a Cityflo bus take a turn near the clubhouse, they know it must be 7:30 or 8 am — that’s when the bulk of its morning buses leave. And they are right. “It's insane. I don’t look at my watch. When I’m walking back home, and I see their bus take that turn, I know it’s 7:30. I don’t need to check my watch,” said one resident of the area.
A year on, as workplaces reopen, Cityflo and its 29-year-old CEO Jerin Venad are daring to dream again. For outsiders, this may look like just another company that struggled during the pandemic and is now talking about growth again. But there’s more to it — Cityflo has always been an unusual startup. It hasn’t raised billions of dollars like some transport startups have. And it operates in only one city, something unheard of for a venture capital-backed firm, whose model prioritises growth over all else. But that unusual nature may well have saved Cityflo.
Multiple levels of panic
When the government announced the first 21-day lockdown on March 24, 2020, followed by more lockdowns, Venad panicked. “There are multiple levels of panic. When your short term revenue disappears, there is nothing more jarring than that,” he says. “As an early-stage company, we don't build revenue every day. We build on the revenue from yesterday. So, losing that momentum hurts.”
Initially Venad and his team braced for one or two months of zero revenue. Bad, but not terrible. In fact from March to May, morale inside the company was high. They were lucky to close an $8 million round of funding from Lightbox Ventures just as the pandemic rolled into India, so there wasn’t a cash crunch. In those months, Cityflo fixed a lot of pending issues that founders sometimes miss out on when business is booming. They improved the app, added more features, updated accounting practices and set employee goals with the HR team. There was enough to keep the company busy.
Cityflo also had to make sure its drivers were taken care of. Despite being a consumer-facing business, drivers arguably determine the company’s fate more than customers do. The founders created WhatsApp groups to stay in touch with the drivers and reassured them they would have a job if they chose to come back. They encouraged customers, along with the company itself, to pool in money to support the drivers. In 14 hours, had Cityflo drummed up Rs 5 lakh.
It also helped that most of Cityflo’s 50-55 employees, including senior management, have been around for 3-4 years of the company’s five years of existence. Knowing the company for that long meant hardly anyone quit, and even in the hardest times, the vibe in the organisation was not toxic. “Once you’ve worked for that long, the relationship goes to a different level. I always say that even outside of this (business), we (the founders) are nice people to hang out with. That comes to the fore during a crisis,” Venad says.
This was also the period where many startups, despite having just raised hundreds of millions of dollars, were laying off employees en masse, cutting salaries to the bone, and reconsidering business in general.
Cityflo encouraged voluntary pay cuts for people earning over Rs 5 lakh per annum, which was about 60 percent of its total workforce. Almost all the eligible employees took a paycut of about 20-25 percent, says Venad.
But the problem started as April ended. While the initial concerns were very short term, the founders started wondering what the pandemic meant for them in the long term. During the first lockdown, the company was still busy fixing various things. Only in May did the real impact start seeping into the organisation and the psyche of its people. No one knew how long this would last. How long would Cityflo have zero revenue and when would the momentum pick up and help it reach the earlier pace?
Inside Cityflo, there were varying levels of optimism as to how quickly the startup would bounce back, with Venad saying he was the most optimistic. But even that optimism can take a hit during sustained periods of no revenue. More so when much of the corporate world has moved to remote working. Many companies now say some parts of the workforce will work from home indefinitely. In a sense, Cityflo’s market size had shrunk.
“There were some bad moments for sure, but we have a very simple view of the world. Remote working is a big part of the world, but if something works for a few months, that does not mean it is a sustainable solution,” Venad says.
So, Cityflo reopened cautiously from June 15, catering only to workers in essential sectors such as healthcare. Buses were sanitised after every trip, drivers checked customers’ temperature before they stepped in, masks were mandatory, and the company even went for a third-party safety audit. Equinox Labs, which generally works with restaurants to certify the quality of the air, water, food and environment, among other things — certified Cityflo’s practices to be safety-first.
Through the months of the lockdown, the startup sent regular app notifications to its users not only to keep the connection going but also to survey how many would resume going to office, and if they would use Cityflo when they did.
“A lot of customers said that on the first day they were nervous, but they saw the measures we were taking, and that put them at ease. That was a big sign of validation for us. And of our former users who were now at home, 95 percent said that when they start going to the office, they would use Cityflo. So, we just had to be patient,” Venad says.
Patience is not a word often associated with internet startups, which are a lot about mentality. The mentality is to grow, to expand, do things faster, better (than yourself and anyone else) and repeat. That mentality during a pandemic almost seems laughable. And this is where Cityflo’s investors come in.
Cityflo is a curious bet for new investor Lightbox Ventures, which focuses exclusively on the consumer segment and makes few but high-conviction bets with significant ownership — a somewhat rare strategy in early-stage venture capital. Cityflo’s investors urged the company to pursue growth aggressively once again.
Lightbox Ventures’ thinking on Cityflo is interesting as well. Like many investors, to see your portfolio company, that too a newly funded one, shut down temporarily and be at reduced scale for a year isn’t easy. But Sandeep Murthy, partner at Lightbox, says: “Our decisions are ten-year decisions (from investment to exit). You invest with a fundamental thesis. Transportation, more than any other industry, will take time to recover. But that thesis doesn't get thrown out of the window overnight, even by these large external factors.”
“After we invest, for the first year, I don't care about growth or revenue numbers. I want you to build the best product you possibly can,” Murthy adds. That’s exactly what Cityflo did from March to June.
As of February 2021, Cityflo is back to 65-70 percent of its pre-pandemic revenue. A year ago, it was doing about 8,000 rides a day with a fleet of 150 buses, and about Rs 2 crore of revenue a month. Today, it is doing 5,000 rides a day with a fleet of 100 buses, and once again eyeing what all startups crave: growth.
Some of the growth looks more impressive before considering the low base effect. Cityflo was not a huge company even pre-pandemic. But not all companies are built to be giants. Now, Venad wants Cityflo to grow to 5x its pre-pandemic revenue by March 2022. Considering fewer people are going to office than before, it looks like a tough ask. But Venad is optimistic, with reason.
“In the last three months, we have grown 40-50 percent a month. And of this, 60 percent of the revenue is from new customers, people who have never used Cityflo before;15-20 percent of the offices Cityflo served pre-pandemic have reopened, but 60-70 percent of our revenue has returned. So, the fact that new customers are using us is really encouraging,” Venad says.
Venad believes he can build Cityflo into a Rs 100-200 crore revenue business in Mumbai alone. To justify his thinking, he doesn’t compare Cityflo to other mobility startups or unicorns. He compares it to D-Mart (Avenue Supermarts Ltd), one of India’s most successful retail chains.
"They had no hurry to go pan-India. Even today more than a third of their stores are in Maharashtra. So, as long as the economics make sense here, I don’t want to expand to other cities. Maybe at some point, but certainly not anytime soon,” he says.
The economics of Cityflo also separate it from the hoi-polloi of mobility startups that have raised a lot of money in a few years but have not registered profits or even gross margins in some cases. Cityflo is gross-margin positive, which means its revenue is more than its basic costs and covers some of its overhead expenses as well. But it still has not recorded a net profit, which is not uncommon but also highlights the challenge of a niche and operations-heavy business.
Cityflo’s older routes, such as from Thane to Lower Parel or Nariman Point are profitable. But the newer routes it launches, say, from the western suburbs to South Mumbai, will take a few months to be profitable, assuming the kind of growth and adoption Venad is expecting.
The bustle is back
You can hear the relief in Venad’s voice when he is talking about how things are different today. “The bustle is back. It’s good to see growth again, and I’m very optimistic but I have to put extra effort and remind myself to be objective,” he says.
Which is an odd thing to say. How can you be objective about your own company? When you are finally seeing business and revenues again, what does objectivity even mean?
“See, my optimism is around our ability to execute. When we are executing, we don’t take no for an answer. But you have to be aware of the reality of the world. External factors are a big part of this business, and that’s where I have to be objective. If I lose hold of reality just because of optimism, it is dangerous,” he says.
Cityflo’s buses are visible in various parts of the city, with the yellow-and-white logo standing out. You can see customers jostling to get into the bus going from Thane to Lower Parel. It is a sign that the company — and the country — are on the mend.