Home > Feature > Hunger deaths don’t deter fund flow to food startups

Hunger deaths don’t deter fund flow to food startups

The hunger for a small pie of the large food genre continues to inspire startup entrepreneurs as well as investors. In the week ended August 4, at least four food startups, two among them in the dreaded food-tech genre that saw heavy casualties in the past eight to 10 months, got a thumbs up from seasoned investors. Petoo, Daily Ninja, Yumlane and Tokri, though with different models but mainly rooted in the food business, raised at least Rs 30 crore from investors such as Flipkart co-founder and CEO Binny Bansal, and People Group founder Anupam Mittal, among others.

Winners-and-losersThe food genre, has in the past six months, seen sporadic deals coming through. In May, for instance, Eatonomist, an online food-tech venture that delivers meals prepared at its kitchens, raised an undisclosed amount in seed investment from MCube Capital Advisors Pvt. Ltd. In March, Cookaroo Food Network Pvt. Ltd, a Bangalore-based startup that aggregates and delivers freshly prepared meals from under-utilised commercial kitchens, raised angel funding from Highland Hospitalities’ MD Vijay Krishna Yadav.

Likewise, food-tech startup First Eat raised $200,000 (around Rs 1.4 crore) in seed investment from an undisclosed investor. In January, FreshMenu, an online food-tech venture that delivers meals prepared at its kitchens, had raised $17 million (around Rs 110 crore) in its Series B funding round led by Zodius Technology Fund.

Hunger deaths

The new launches and investments notwithstanding, the food genre has seen a large number of hunger deaths in the past six to eight months. The rot in the business had set in within three years of the category building up in India, as hordes of me-too players crowded in the space and threw the demand-supply equation in the fledgling internet consumer market off balance.

According to estimates, under the larger umbrella of food startups, more than 400 app-based delivery platforms were launched between 2013 and 2016 raising close to $150 million from early stage as well as venture capital investors. Likewise, hordes of hyper-local grocery delivery platforms, too, sprung up making a bid for the same set of close to 50 million customers that, essentially, all consumer facing internet-based companies are targeting.

“Food tech space in India is over supplied with startups and funding leading to the way hyper-local went through the roof till early 2016,” said Vikram Upadhyaya, chief mentor and accelerator evangelist, GHV Accelerator, which has invested in food-tech startup Foodport.

Vikram Upadhyaya, chief mentor and accelerator evangelist, GHV Accelerator

Vikram Upadhyaya, chief mentor and
accelerator evangelist, GHV

A small half-baked pie with too many contenders for it, had to crumble. And it did.

“What essentially happened in the case of food tech space was that the barriers to entry were pretty low. It seemed pretty simple from outside. Therefore, a lot of people without significant experience or understanding of the consumer behavior got into this space. And so the inevitable – market correction – happened,” said Prateek Agarwal, CEO of Bite Club, an online marketplace for chefs.

Close to a dozen food startups shut shop or halted operations in recent months. Many of those that downed the shutters had built a considerable brand recall in the market and even had the backing of pedigreed investors. A case in point is TinyOwl. Launched in August 2014, TinyOwl started out as a restaurant listing and food delivery app and raised close to Rs 185 crore in four rounds from venture capital investors such as Sequoia Capital and Nexus Venture Partners. The two VC funds participated in three of the four rounds of funding, thus, underscoring their confidence in the startup. After having failed in scaling up the business and constantly running huge losses, the app finally ended up merging itself with logistics company RoadRunnr.

Bite Club, a Gurgaon-based food-tech startup and Zeppery, which allowed users to pre-order food at restaurants, among several others, too, paused operations few months ago.

Then, there were online grocery delivery platforms such as PepperTap, LocalBanya and Nearby, which, despite the backing of solid investors lost direction and disappeared.

Epicur-ious deals

In this rather sordid backdrop, Petoo, Yumlane, Daily Ninja and Tokri, getting a nod from investors is intriguing.

Yumlane, a Mumbai-based packaged food startup operated by QwikPik Technology Pvt. Ltd, raised nearly Rs 6.6 crore ($1 million) in a seed round of funding led by Flipkart’s Bansal. MakeMyTrip co-founder Sachin Bhatia, Darius Pandole, partner at private equity firm New Silk Route, and People Group’s Mittal also participated in the startup.

Daily Ninja, a hyper-local delivery startup operated by Daily Ninja Delivery Services Pvt. Ltd, raised funds in a pre-Series A round. It didn’t disclose the amount raised. Those who participated in fund-raising included existing investors Aprameya Radhakrishna, founder of TaxiForSure and Venk Krishnan of early stage investor NuVentures.

Likewise, Pune-based hyper-local delivery startup Tokri raised $2.5 million (around Rs 16.7 crore) in a pre-Series A round from Syska LED group, which promised more funds along the way.

Finally, Bangalore-based food tech startup Petoo raised $500,000 from its existing investors and high-net-worth individuals through online deal-making platform LetsVenture. This was the second fund-raise by the startup as it had raised $1 million from Infosys co-founders SD Shibulal and Kris Gopalakrishnan besides three more angel investors.

Forget the stink in the food genre, these deals also come at a time when investors are being extremely cautious in picking the right bets and losing appetite for startups that don’t have a profitable business model at their core. Owing to this guarded approach, the first half of 2016 saw a steep decline in early stage investments and venture capital deals vis-à-vis the same period of 2015.

Differentiate, differentiate

A differentiated business proposition is a universally accepted success mantra for entrepreneurs. So at a time when the me-too players are sliding down the slope, those with a novel idea or offering are able to ascend up and many along the path are happy to lend them a hand.

And that explains how the startups mentioned above managed to get investors to buy into their ideas.

Rajesh Sawhney

Rajesh Sawhney, founder
GSF Accelerator &
co-founder, Innerchef

“Startups that change, pivot and adapt will survive this capital squeeze and will eventually emerge stronger in 2017,” says Rajesh Sawhney, founder GSF Accelerator and co-founder of Innerchef. “Smart Investors love teams that focus on execution, especially in times of capital squeeze. Smart Investors also understand that the opportunity is huge in food business,” he adds.

Looks like Petoo,Yumlane, Daily Ninja and Tokri did their homework before reaching out to investors. Petoo, though, operating in the small packaged food genre, is investing in technology that helps in keeping food fresh for a longer period of time. “We have been researching on ways to preserve food and have developed some products. We would like to use the funds (raised) to roll out those products to the market to test the right channels,” said Kumar Setu, co-founder of Petoo, in an interaction with Techcircle.in earlier last week.

Sagar Yarnalkar

Sagar Yarnalkar, co-founder,
Daily Ninja

While Daily Ninja and Tokri are in the hyperlocal delivery vertical that saw maximum shut downs in the recent months but the two platforms have tried to bring in small innovations that might help them survive the odds in the business. Tokri, for instance, is trying to innovate by coming up with different delivery formats and slots. Daily Ninja, on the other hand, is focusing only on certain pockets of Bengaluru and not servicing the entire city while keeping a tight check on its costs. “Our current cost per delivery is Rs 3 which we will cut down to half as we grow. Scheduled deliveries in morning also help us move fast and avoid traffic while having 100% fulfilment,” said Sagar Yarnalkar, who co-founded Daily Ninja with Anurag Gupta in July 2015.

All is not well, yet

While these developments come as a great relief for the sector, it would be a massive error of judgment to view this as an absolute re-emergence of food-tech industry, warn observers. “The winners in this space have to build good unit economics by winning the taste buds of customers using the food, processing and technology model,” said Upadhyaya of GHV Accelerator. “The founding team which has all these three ingredients in place will cook the best food-tech recipe,” he added.

Prerna Bhutani

Prerna Bhutani, partner, India Quotient

Market pundits say that startups that fail to address the obvious problems and the underlying strategic issues are going to walk the same path of vulnerabilities in the highly volatile market. “The firms that are shutting shop are the ones that could not sustain the negative unit economics which they had started using as a growth hack,” said Prerna Bhutani, partner at early stage fund India Quotient, which recently invested in Holachef.

Bhutani, however, has some hope to offer to those wanting to crack the food puzzle.
“Angel investments in newer models will continue, and companies which are more tech plays than logistics plays in this segment are likely to capture the interest of the VCs now.”

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