The sordid saga of a $300 million-funded startup going bust in India

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It was on the fateful day of August 17, 2016 that AskMe shocked the industry by suspending its operations. It seemed as if the digital-listings and ecommerce startup, with US$300 million in funding and touted to be on its way to becoming a unicorn, went spiraling down overnight. But in fact, the firm’s troubles began much earlier.

Its top management had kept the lid on the business falling apart. The suspension of business was never formally announced, even till today. There are scores of employees still waiting for their salaries, and vendors for their dues. This is the saga of AskMe’s downward spiral.

AskMe got distracted from its listings business when the ecommerce scene started heating up in India, a former senior official in the company who did not want to be named, told Tech In Asia.

“We had a good product in hand. We wanted to make it the Yelp of India. But somewhere in the middle we realized that things weren’t transparent. There was resistance from top management if we tried to change things. The venture wasn’t being run professionally,” he said. “The final product was nowhere near Yelp,” he added.

AskMe was the second avatar of Getit Infoservices, which was founded three decades ago to list sellers of goods and services in the form of a directory. It went online in 2010 when Astro Entertainments Networks, a subsidiary of Astro Overseas (not to be confused with media group Astro Malaysia Holdings), invested close to US$15 million in Getit. In March 2013, it acquired Infomedia Yellow Pages and AskMe from the Network18 group. The company then wanted to leverage its small and medium enterprise database and use it for an ecommerce platform called AskMe Bazaar.

Getit took up the humongous task of bringing the millions of India’s unorganized small vendors into its fold. These vendors had no formal catalogue to vouch for, no standard pricing, and no organized inventory.

“It was hard to train these sellers and educate them on using an online marketplace. The fact that they will not get the money in real-time was one of the big issues,” another senior company official said. The vendors didn’t know how to do deliveries, so Getit had to step in to get the goods to its consumers, which meant higher cash burn, the official added.

Email troubles

What gave away AskMe’s financial trouble was an email sent on August 17 to “select” employees by Anand Sonbhadra, the group chief financial officer of Getit Infoservices that runs AskMe.

The mail directed these “select” employees to disable transaction and payment options on the websites. The mail was leaked to other employees and thus started a panic reaction to possible financial bankruptcy.

On August 23, AskMe terminated its contract with recruitment agency Innov, which it had engaged to outsource the hiring of delivery boys. Well, at least they had a formal communication from AskMe. The same cannot be said for AskMe’s own 4,000 employees. According to information gathered by Tech in Asia through the staff of AskMe, the last formal communication the employees received from the management was an email instructing them not to report to office and only work from home. The purpose was clear here. If the company had laid off the employees, it would have to pay severance packages under the employment contracts. This means that AskMe still has 4,000 people on its payroll, who haven’t received their salaries since August.

Tech In Asia spoke to several of them, who are mulling legal options.

There are several aggrieved employee groups that have cropped up, including a Facebook page shaming the company publicly in order to recover dues from the company. Two such employee groups Tech in Asia spoke to are gearing up to file a case against Getit and Astro. Many employees who we interviewed said they tried to resign but there was no one left in the hierarchy to accept their resignation. All senior management had abandoned the company.

There was no one around to accept employee resignations.

According to two managers of the company, AskMe Bazaar CEO Kiran Murthi and group CFO Anand Sonbhadra had stopped coming to office as early as June. While Kiran refused to speak to Tech In Asia, banging the phone with a strong expletive on “media people”, Anand asked us to call later, but never picked up the calls thereafter.

June was also the time when three members of the board of directors – Khader Bin Merican, Hishan Zainal Mokhtar, and Ashok Rajgopal — resigned abruptly.

A few employees were in touch with co-founder of AskMe Sanjiv Gupta till September, via a WhatsApp group, where they were repeatedly assured that things would be resolved very soon. Now the group is non-existent and Sanjiv’s number switched off, an employee told us.

Interestingly, Sanjiv had issued a statement in mid-August squarely blaming its sole and majority shareholder Astro of evading its obligation and fleeing the country without paying employees and vendors. Sanjiv also tabled a management buyout offer in his individual capacity to Astro, which according to former management officials, was snubbed by the investor on various grounds.

Buyouts, or not?

In the first buyout offer extended by Gupta in June, a copy of which is in our possession and examined by Tech in Asia, he offers Astro US$1 for its majority shareholding of 98.3 percent in Getit. The offer gives two options to Astro to pay up an amount of US$30 million or US$50 million, as capital infusion in Getit in place of closure costs of US$76.5 million. Gupta offers Astro “appropriate convertible instruments” in Getit against the capital infusion.

While an email sent to Gupta went unanswered, Astro Entertainment Networks Ltd (AENL) in a response said, “If this was a serious MBO (management buyout) offer, there was no point in asking AENL to put in more additional funding. This was a major reason why the MBO didn’t go through.”

According to Astro, a closure cost of US$76.5 million was not relevant when the MBO was being negotiated, “because AENL got into negotiations with Sanjiv Gupta with the understanding that his intentions were to keep Getit up and running.

Orders had dropped by 90 percent in February 2016

In a bid to arm-twist Astro, Sanjiv also urged AskMe employees and vendors to reach out to Astro directly for their dues. Some did write to Astro but the majority stayed clear of blaming the investor.

However, the debacle of AskMe wasn’t as sudden as it was made out to be. A senior management official of the company told us that Astro had informed the management of Getit in 2015 that they were not prepared to fund the business anymore and that management should make every effort to find alternative means to source funding, including identifying potential investors for the business.

Astro’s decision was based on a report by an independent advisor stating that AskMe’s business plans were “overly aggressive and uncompetitive.” Astro had allegedly warned the management to scale down the business and suspend trading. This was nearly a year before the day AskMe’s troubles unraveled.

“The independent adviser recommended that the business plans of the company were not only found to be overly aggressive and uncompetitive when benchmarked against its competitors, but also left no pragmatic means of cutting their mounting costs,” Astro said in the email response.

“The advisor also concluded that given the current circumstances, the business had dim prospects moving forward. The board, having considered the opinions provided by the independent adviser, instructed management to scale down the business and suspend trading but this was not complied with by management,” they added.

In August 2016, Astro issued a statement countering Gupta’s allegations. The statement said that the company had invested over US$300 million in Getit but the management had failed to turn the business profitable and failed to meet the performance milestones agreed upon. The Kuala Lumpur based investment firm made it clear that it was not happy with the way top management of Getit operated AskMe.

Drop in clicks

The company’s website visits had dropped drastically as early as January, to a meager 1,000 per day. A manager in the mobiles division informed Tech in Asia that orders for the department had dropped by a whopping 90 percent in February 2016. The reason, a top management official said, was that the company had already started suspension of trade.

The AskMe Bazaar vendors Tech in Asia spoke to said that the company had started defaulting on payments as early as November to December 2015. However, the vendors were personally assured by Gupta that it was business as usual. The delayed payment was temporary and there was no cause for worry.

Going by numbers, there was really no reason to worry. AskMe Bazaar was selling goods worth US$1 million daily by September 2015. In February 2016, it crossed US$500 million in valuation, and was well on its way to grab the unicorn tag. To put things in perspective, Flipkart reached US$1 billion in valuation in 2012, Snapdeal in 2014, Paytm in 2015, and Shopclues in 2016.

All that’s left of AskMe’s website.

While the success of an ecommerce company is generally judged by the worth of goods sold or gross merchandise value, revenue and net profit still matters. Getit’s revenue from operations in March 2014 jumped to US$6.3 million from US$3.7 million in 2013. In the same period, its losses also mounted to US$27 million from US$14.7 million. In March 2015, losses trebled to US$45 million, while revenue stood at US$6.4 million.

In the discount season, the company was burning cash to the tune of US$10 million per month. According to a marketing official in the top management, the managers knew the company was burning cash, but their suggestions were never taken into account, as “Gupta was the sole touch point for Astro.”

“We were never privy to specifics from Astro. All communication was carried out only with Gupta. It could be his mastermind to alienate everyone, or Astro’s lack of transparency; whatever it may be, it meant trouble for the organization,” the official said.

The investor in its defense says that “Sanjiv Gupta was contractually responsible for managing the day-to-day operations of the company, and must be held accountable. Gupta has taken no responsibility of mismanaging the business.” Astro also informed that the internal performance targets submitted by Sanjiv Gupta were never once achieved.

AskMe started defaulting on vendor payments as early as November 2015

The management knew that Astro had problems with the functioning of AskMe and Gupta’s style of management, but the investor increased Gupta’s compensation significantly just five months before it withdrew funding. Astro did not deny the development but declined to comment on it.

After Astro’s warning to the management in 2015, Gupta started scouting for investors. According to another top official of the company, Gupta had managed to secure US$100 million funding from Kolkata-based Emami and a term sheet was also signed in February 2016. But the investor withdrew after Flipkart was devalued.

According to the official Tech in Asia spoke to, there were two more investors from China and the US for a US$100 million cash infusion. “Astro didn’t respond to the Chinese investor’s demands. It seemed they didn’t want to offload stake. The US investor withdrew because Astro was issued a chargesheet by CBI (Central Bureau of Investigation) in connection with a telecom deal in India,” the official said.

Hearing upcoming

The Astro Group, led by Malaysian billionaire T Ananda Krishnan, is an investor in a slew of digital media and internet ventures and telecom businesses in India through Astro Overseas Ltd, Astro Entertainment Network Ltd, and affiliate firm Maxis Communication. Faced with legal troubles, Astro merged affiliate Maxis Communication-controlled telecom operator Aircel with Anil Ambani-led Reliance Communication and is exiting other smaller digital ventures, too.

By the end of June, Astro was on its toes to dilute the business and recover its investment. In July, it appointed two directors, Sandeep Vats and Prakash Mishra, to the AskMe board. A top official confirmed that their basic directive was to reach a settlement and shut down the business.

In the absence of any other investor, Gupta tried to salvage the situation by putting forward his own offer to buy out Getit. He has placed such an offer three times since then, the latest being in September. Gupta offered less than US$100 million for the management buyout.

Gupta’s latest offer follows the directive given by the National Company Law Tribunal (NCLT) on August 31, which stated that the parties maintain status quo and asked Astro not to exit AskMe. Gupta had earlier accused Astro of trying to flee the country without paying the closure cost that left the company defunct.

Astro, on the other hand, had said it invested close to US$300 million in Getit over the past six years and threatened to conduct a forensic audit of its books to find out why the firm did not show any growth. It had earlier said that it would leave the defunct ecommerce venture AskMe to a court-administered sale as part of a winding down process. NCLT has scheduled a hearing on the case on November 9.

This post The sordid saga of a $300 million-funded startup going bust in India appeared first on Tech in Asia.

from Tech in Asia https://www.techinasia.com/askme-300-million-disaster
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