It’s just the beginning of the year but 2017 appears to be a bad start for tech startups in India. While the news of Snapdeal’s mass layoffs is still trying to settle in, Chennai-based homestay aggregator Stayzilla, has suspended operations with a view to revamp its business model. However, no announcement was made to reveal any time frame for the come-back.
“I would like to announce today that we would be bringing to a halt the operations of Stayzilla in its current form, and looking to reboot it with a different business model,” announced Yogendra Vasupal, Co-founder and CEO, Stayzilla in a blog on Medium.
Founded in 2005 under the name Inasra, the startup was rebranded as Stayzilla in 2010. After bagging an initial funding of $500,000 from the Indian Angel Network, the startup raised funds in a series A round in 2013. This was followed by a $34 million in funding from investors including Matrix Partners and Nexus Venture Partners in 2015.
“I am most thankful to my investors, Avnish Sir from Matrix and Anup Sir from Nexus. I have learnt a lot from them. Just knowing that they are always there by my side has been a major confidence boost,” mentioned Vasupal in the blogpost.
What led to the failure?
Stating the reasons behind this grieving decision, Vasupal noted that the travel marketplace does not have local network effects and, therefore, the company can’t really take a focused city-by-city approach in terms of matching supply and demand. Also, the demand and supply for homestays was non-existent 18 months back, excluding a few small pockets. As a result, Stayzilla had to invest extensively in both sides of the marketplace, creating homestays as well as guests who would choose a homestay across the country. This dried up their funds.
He further added that a lack of market and Internet knowledge in the country stood in the way of business growth.
“The costs, both financial and opportunity costs, creep up on you over a period of time and gets rationalized as cost of doing business in India,” Vasupal explained.
This was further exacerbated by the discounting based growth rampant in the travel industry since 2015. Forced to match prices, the startup could not recover what it put in, necessitating very large capital requirement simply to sustain growth.
Now its business has come tumbling down after having created more than 55,000 stay options across 4,500 towns in the country that catered to both homeowners and travelers looking for non-hotel-like stay experiences.
Looking at a clean start!
The move comes at a time when Makemytrip has merged its operations with ibibo by acquiring the latter for $1.8-2 billion. This marked the biggest acquisition in the online travel space in India making Makemytrip the largest competition for Stayzilla.
However, Vasupal hasn’t lost hope in the startup and believes that co-operation and specialization is the mantra for Stayzilla.
“Focusing all our energies on the supply side will allow us to build on our core strength that we have developed over the last 18 months. Specialized solutions such as the concept of ‘Stayzilla Verified Homestays’ excite me in particular. Originally conceived to increase trust, this could serve as the benchmark for the entire nascent and unstructured industry,” he noted.
While it’s not clear when the company will revive from its deprived state, this downfall once again makes it evident that consumer Internet ventures in India are sailing in a rough sea of uncertainty as funding in the industry is drying up.