What caused VC-backed foodtech startup Yumist’s collapse?

Venture capital-backed meals ordering startup Yumist has shut shop, as the high-growth and high-burn path it took under pressure from prospective investors and a failure to raise fresh capital dragged it down.

Yumist joins a long list of foodtech ventures that have failed despite attracting venture capital investors, though unlike most startups it had eventually figured out a profitably scalable business model.

Announcing the decision to end its three-year journey, Yumist co-founders Alok Jain and Abhimanyu Maheshwari said in a blog post: “We failed to raise the kind of capital that this business required while staying true to the customer problem…From launching in a second city prematurely, or committing to a high-growth, high-burn model just because prospective investors wanted to see that back in 2015, or taking a tad bit too long to find the right business model, we made our mistakes.”

Founded in October 2014, Yumist offered home-made food, primarily to office goers. It offered options like rajma rice, and chicken rice, operating in the low-priced daily meals market. The company counted the “dabba-walla” and “corporate canteens” as its primary competitors.

Owned and operated by YuMist Foodtech Pvt. Ltd., the startup had raised a total of $2.7 million in two rounds of venture capital investments. According to VCCEdge, the data research platform of News Corp VCCircle, the company raised $970,000 in seed funding from Orios Venture Partners in January 2015 and $1.8 million in December the same year from Ronnie Screwvala’s Unilazer Ventures Pvt. Ltd, Silicon Valley investor Steven Lurie and Orios.

According to the blog, the company tried multiple iterations across its supply chain to find a business model that was profitably scalable and successfully developed a demand prediction algorithm with which orders were delivered within 15 minutes and one such order was delivered in every two minutes.

“By March 2017, we were making Rs 65 in margins per order at an average order value of Rs 190 (an average order for us would serve two people), our delivery outlets were breaking even at just 70 orders a day, we were acquiring new customers at Rs 180 and recovering back this money within 45 days,” the founders said.

Nearly 50% of its new customers came through referrals and 70% of monthly orders were from repeat customers. The company claimed it tripled its revenues and gross margins from March until September.

“With these trends, Yumist would have become a profitable company by June 2018,” the founders said.

The founders attributed their failure to raise funds to the economic climate and investor sentiment in the sector it operated in, the factors it had no control on. “2016 onwards, foodtech (in the manner the term is loosely used) had amassed notoriety with investors and media and became almost a dirty word.

We failed in all our attempts to fundraise since then, as investors wanted to wait it out,” they said.

According to VCCEdge, Yumist’s net sales stood at Rs 1 crore in 2015-16 versus Rs 9 lakh in the previous year while net loss widened to Rs 4.9 crore from Rs 3.9 crore.

In October 2015, the company had moved away from its app-only approach by enabling its website to take orders while also continuing to take orders on its app. The decision was taken keeping in mind its primary customers – the office goers, who are almost always in front of a desktop or laptop.

According to Jain and Maheshwari, the concept of cloud kitchens will continue to thrive.

“At this juncture, some questions haunt us. Had we built Yumist in a different time, would the outcome be different? Would we then have raised enough capital allowing us to build this same business profitably across the Country? Maybe yes, maybe no.

We will never know,” they wrote. “What we do know is this. Cloud kitchens are here to stay. It’s probably the case that the first one through the door gets shot.”

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