The initial 7 years were all about having negative working capital, positive cash flow, and a sustained ability to fund our own growth. Those were the only metrics we tracked. In the last 3 to 4 years, though, I can honestly state that somewhere I lost my path. I started treasuring GMV (gross merchandize value), room-nights, and other ‘vanity’ metrics instead of the fundamentals of cash flow and working capital.
That’s Yogendra Vasupal, founder and CEO of India’s largest homestay network Stayzilla, talking.
This the first time that an Indian founder has spoken so bluntly about his startup’s failure. That too just a day after he broke the tough news of layoffs to his employees.
Earlier today, Tech in Asia broke the news of Stayzilla’s shutdown.
The startup with a network of 55,000 properties, including homestays, small hotels, and other properties across towns in India – from faraway Ziro in northeast India to Theni in the south – had served over a million travellers.
Stayzilla was founded by Yogendra Vasupal – better known as Yogi – with his wife Rupal Yogendra and his friend Sachit Singhi in 2010. They were avid travelers and their passion showed in the curation of exotic homestays on Stayzilla.
It initially got US$500,000 from the Indian Angel Network, followed by a series A round of an undisclosed amount in 2013. Two years ago, in the boom time of 2015, it raised US$20 million and US$13 million in series B and C rounds from Matrix Partners and Nexus Ventures.
“The last year has been a focused attempt to get back to our initial, and stable, value system. However, 12 months was just not enough time to shift paths, when we were already 36 months down a dramatically different path,” Yogi said.
In an effusive blog post, Yogi thanked his entire team, even naming several individuals who played a key role in building up Stayzilla, and shouldered the entire blame for the startup’s shutdown. That’s another first.
Reasons for failure, according to the founder
“Despite having a very clear lead, despite a lot of firsts, despite being successful in getting an ecosystem up from scratch pan-India, there are a few reasons why we are at this juncture,” Yogi elaborated.
Forced to match prices, we could not even recoup what we put in, necessitating very large capital requirement simply to sustain growth.
“The travel marketplace does not have local network effects and, therefore, we can’t really take a focused city-by-city approach in terms of matching supply and demand. The demand and supply for homestays was non-existent 18 months back, excluding a few small pockets. As a result, we had to invest extensively in both sides of the marketplace, creating homestays as well as guests who would choose a homestay across the country. We were actually successful at this – we have created 8,000 homestays in over 900 towns – but this stretched us thin.”
He pointed out that some very India-specific issues in logistics, supply chain, and online user behavior too hindered Stayzilla’s expansion plans. “A homestays marketplace needs to invest in educating the market on the concept and even [on] using the internet and not just the product. 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,” Yogi said.
“This was further exacerbated by the discounting based growth rampant in the travel industry since 2015. Forced to match prices, we could not even recoup what we put in, necessitating very large capital requirement simply to sustain growth,” he added.
Stayzilla was trying to raise additional capital in the past few months but the global funding winter since last year played spoilsport.
Seven years of building up a network of homestays is a huge amount of work, and Yogi wants to salvage what he can in a “reboot” of sorts. “Our hosts still have a lot of needs that are unmet and problems that are unsolved. That’s something that excites me. I see Stayzilla becoming a hassle-free distribution channel going out to the right audience, wherever they may be. We will look to work closely with both online and offline travel partners to offer the best of Indian homestays to their valued customers,” Yogi said on the future course for the company.
Expect more niche products from them – for example, ‘Stayzilla Verified Homestays’ – Yogi added.
- This article also includes the writer’s opinion.
This post Why Stayzilla backed by Matrix and Nexus shut down. A founder’s rare admission appeared first on Tech in Asia.
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