More startup shutdowns - after PepperTap, turn of ex-Housing Co-founder’s beauty startup to down shutters

Right after online grocery startup PepperTap’s shut down a few days ago, online beauty startup Amber Wellness, co-founded by former Co-founder of Housing.com Abhimanyu Dhamija and fellow IIT-ian Saurabh Goel, has shut down. They are ending their services in all the three cities they operate in - Bangalore, Delhi and Mumbai – due to low margins.

Abhimanyu confirmed the development to YourStory and said that they were doing well otherwise, with a ticket size of Rs 1,300 on average. He said that although it was a hard decision, they took it because on-demand businesses are going out of fashion. "We are not shutting down the company. We are making a conscious call to get out of this business. And we will be coming up with a new concept and launching in the next couple of months," says Abhimanyu.

Abhimanyu and Saurabh had been working on Amber for 11 months before launching in August 2015. Amber had raised about $1 million risk capital from undisclosed angel investors. They had launched an app about three weeks ago. They had partnered with some baby care brands as their target audience includes pregnant women and young mothers who stay at home. Amber had five in-house stylists and 20 freelancers. In the events category, they had 275 freelance bridal stylists. Yet, March and April saw little traction.

Challenges in beauty space

Startups have been mushrooming in the beauty space for a while now. The sector is unique – it’s the most personalised service, highly capital-intensive and operationally challenging. Abhimanyu said: “On-demand models work in an environment where there is enough liquidity on the demand side and the supply side and there is localised match between the two. It requires a lot of capital investment on both sides.”

Beauty service on-demand has been going on in an unorganised fashion. The tendency is to pay less for those services compared to a salon. For a body massage, women at home pay Rs 400. Since people won’t pay a premium for such services, a lot of investment is needed to maintain a margin and liquidity on supply side. Abhimanyu adds: “We were not making local supply-demand match, and logistics costs go through the roof. On the customer side, this is not something completely new that people want to pay highly to try out.”

Beauty space is not like taxi, house repair or grocery where you just want the service done, regardless of who is doing it. Since this is a personalised service, you need to know who is the beautician servicing you, and once you develop an affinity to a stylist, you would want them every time. Then demand-supply mismatch happens, because if one stylist is really good people would want her repeatedly. Abhimanyu says: “In the longer run you have a few stylists who are very good, and others will be filtered off. Then we need more liquidity.”

Logistics costs were going through the roof too. “In Mumbai, areas of high demand are Andheri, Powai and Bandra, but the beauticians live far off. We used to take commission, but for repeat-orders from far off places, they had an issue as they had to carry a kit and take local trains multiple times,” Abhimanyu says.

The Housing saga

Alumni of the 2007-11 batch of B.Tech in Computer Science and Engineering at IIT-Bombay, Abhimanyu was among the core team that launched India’s most famous startup in the online real estate discovery. But Housing, which became immensely rich and popular, was embroiled in controversies since 2014 when Abhimanyu left with two other co-founders, and their Founder-CEO Rahul Yadav was fired in July 2015.

Rahul went on to start up again – with Intelligent Interfaces - backed by stalwarts like cricketer Yuvraj Singh, Flipkart’s Sachin and Binny Bansal, Paytm Founder Vijay Shekhar Sharma, and Micromax Co-founder Rahul Sharma. Another Co-founder Advitiya Sharma quit in March 2016, and announced his new edu-tech startup ‘Genius Micro Schools’ last week. Curiously he had also admitted that building capital-intensive product and services was a mistake.

A month after Advitiya left, three more co-founders - Abhishek Anand, Ravish Nareash and Sanat Ghosh – also left Housing to start a venture in the human resource management sector. The three co-founders who are still with Housing are Snehil Buxy (CPO), Jaspreet Saluja (Head, Data operations) and Amrit Raj (Head of digital marketing). Housing, funded again by Soft Bank with Rs 100 crore earlier this year, has pivoted from rentals to sales and fired hundreds of employees.

Bubble burst?

Quite a few startups have shut down in the past few months, including a beauty startup Stylish. Most of the damage was in food and grocery sector though, including Bangalore-based Eatlo and Mumbai-based Local Banya which shut down in December 2015, as well as PepperTap which ended its operations a few days ago. Bus aggregator Trevo also ended its service in Delhi abruptly, without the founders giving an explanation.

Indian startups have raised record amount of venture and angel funding in 2015. Risk capital worth $9 billion was invested in Indian startups across over 1,005 deals, where deal value was announced, according to YourStory Research. Many of the deals that happened were in the early stages ranging from angel to Series A. While the first quarter of 2016 saw deal flow continue unabated, much of it again went into the pockets of early-stage startups. $1.42 billion was pumped into startups across 307 deals in Q1 2016, according to YourStory Research. But, of these only 11 were Series B deals. Experts and analysts have been warning of a Series B drought this year. No wonder that many startups are talking about unit economics and profitability. However, it remains to be seen how many startups will be able to survive with limited risk capital.