Otipy, a community group-buying startup based in Delhi-NCR that linked consumers with fresh farm produce and everyday essentials, ceased operations following an unsuccessful attempt to close a vital $10 million funding round.
According to media reports, the collapse was set in motion when India’s Hero family office unexpectedly pulled out from the funding at the last minute, plunging the startup into a sudden cash crunch, leaving around 300 employees in the lurch.
While the shutdown underscores the growing funding squeeze facing startups, it has also sparked mounting concerns over unpaid dues and stuck wallet balances.
Otipy co-founder and CEO Varun Khurana is believed to have addressed employees in a town hall held on May 18, wherein he urged them to seek alternative opportunities, citing the company’s inability to sustain operations.
According to a report by Inc42, the startup has not paid employee salaries for the past six weeks and is now aiming to settle outstanding dues, with Khurana reportedly working to liquidate company assets to meet obligations.
Otipy, the consumer-facing brand of parent company Crofarm Agriproducts, had earned a reputation as a trailblazer in the farm-to-table supply chain space.
The startup leveraged a network of community resellers to facilitate group buying, offering fresh produce at affordable prices by optimising the logistics between farmers and urban consumers.
Otipy grabbed attention in 2022 when it raised $32 million in a Series B round led by private equity firm WestBridge Capital. The round also drew continued support from existing backers, including SIG and Omidyar Network India.
This capital infusion followed a $10.2 million funding round just six months earlier. The round was joined by SIG, Omidyar Network India, IPV (Inflection Point Ventures), and Pravega Ventures.
A wave of startups backed by prominent investors is, of late, struggling to secure new funding amidst a turbulent macroeconomic landscape. These include names such as 10Club, backed by consumer-focused VC firm Fireside Ventures.
The e-commerce marketplace aggregator, which once raised one of India’s largest seed rounds, filed for insolvency earlier this month after struggling to establish a sustainable business model.
Casualties are “routine events” in the startup ecosystem, said Pranav Pai, Founding Partner at 3one4 Capital, highlighting that “they happen globally”.
“Most venture-backed companies do not succeed, and even larger startups regularly falter across sectors and regions. Innovation is a brutal and competitive industry, and the destruction of non-competitive businesses will continue to occur,” he said.
The real concern, however, emerges when these struggles expose deeper issues around governance, transparency, and accountability within segments of the startup ecosystem. This is evident in recent cases such as Builder.ai, the no-code software development startup, as well as Gensol Engineering, highlighting systemic challenges that go beyond just market competition.
Just last month, EV ride-hailing platform BluSmart halted cab bookings in India after the country’s capital markets regulator issued an interim order alleging financial misconduct at the publicly-listed Gensol Engineering, leaving commuters in a fix. Gensol and BluSmart share common promoters, and the former also financed and leased electric vehicles to BluSmart.
The inconvenience was compounded as many users loaded funds into BluSmart’s in-app ‘Blu’ wallets. That left them stranded without access to their prepaid balance. “We are not even able to refund the money customers deposited in the Blu wallet as all our [company’s] accounts are empty,” an internal source at that time had told DealStreetAsia.
“While write-offs due to failed business models despite great teams working on it are common in the investing world, those due to governance oversight are being baulked at by LPs and point to diligence failures,” said Anup Jain, founder partner at BlueGreen Ventures.
There are two critical points of failure, he explained. The first is pre-investment diligence, where the fundamental question arises: if the business model was flawed, why did the investment go through? The second is post-investment diligence, where issues such as fund siphoning, founder self-gratification, or fraudulent misrepresentation come to light.
While Builder.ai is backed by Jungle Ventures and the Qatar Investment Authority, BluSmart, too, has a roster of prominent investors. These include names such as responsAbility, MS Dhoni Family Office, BP Ventures, Survam Partners, Mayfield India Fund, 9Unicorns (now 100Unicorns), JITO Angel Network, Green Frontier Capital, Stride Ventures, Alteria Capital, BlackSoil, and Ka Innovations LLP, the family office of Bollywood actress Deepika Padukone.
