The health and wellness venture, Cure.fit, earlier this month became the first big casualty of the COVID-19 pandemic after the company announced that it was shutting down several of its centres across the country and laying off over 800 employees.
It shook the start-up industry as Cure.fit was a well-funded venture run by the poster boys of the start-up world, Ankit Nagori, the former chief business officer of Flipkart, and Mukesh Bansal, the founder of the fashion e-commerce company, Myntra.
Both of them had raised $405 million from nine funding rounds from venture funds such as Temasek, Accel Partners, Kalaari Capital and others since the start-up’s launch four years ago. A year ago, the company was valued at $500 million and the valuation must have gone up by a few notches after the ninth round of funding, two months ago, fetched the founders $110 million more.
Despite having access to a vast amount of cash and a bunch of friendly investors, the start-up scaled down its operations suddenly. In an internal letter to the employees on May 1, the founders claimed that the pandemic had forced them to cut back on investments and reduce the staff strength. Ironically, the founders had a few days before the announcement contributed ₹5 crore to the PM-CARES fund which was set up to revive the economy by giving away benefits to small and medium companies to help them sustain their businesses.
Following the sudden near-collapse of Cure.fit, the start-up industry is in a state of panic. They are not sure where and whether the next round of investments will turn up. Nagori and Bansal may not have to worry that much as they already draw a handsome salary of ₹83 lakh each and every year apart from the stake they hold in the company, which might now fetch them a lesser amount of money in case they exit their start-up, but certainly, their situation will be far from pitiable compared with their former employees.
That they were drawing such huge amount of salaries when the start-up was bleeding continuously, should have worried their investors, but it is unlikely that it did. The ones who will endure the failure of Cure.fit and perhaps several other such big start-ups will be the employees.
The founders’ letter to the employees of Cure.fit lists how the money was being spent, apart from pointing out that salaries were being paid fully even though the revenues of the company had become zero from ₹70 crore per month a few months before. In an interview to the Mint newspaper, Nagori had claimed that the company had 130 gyms spread across the country. On a monthly basis, the start-up had half a million active users of which1.5 lakh were gym users and 3-4 lakh were the users of green food delivery service EatFit.
So, if the monthly revenues had become zero, it meant that none of those who used the services were paying up, which defies logic. Also, another point to be noted here is that while the founders claimed that it was the pandemic which was the primary reason for their woes, the letter states that the revenues had dried up since March itself, which was nearly a month before the virus struck the economy. Therefore, the coronavirus may not have been the only reason for their misery, even though the letter claimed that it was so.
Cure.fit ran a vast business, and in the first year of its founding itself, it had bought a boutique fitness brand Cult, and a year later, The Tribe, which too ran a similar business. During the same year, it acquired a chain of yoga schools, 1000yoga, followed by food delivery start-up Kristy’s Kitchen, and then a health beverage brand, Rejoov.
What it showed was that the investors backed a start-up whose business model was based on acquisitions and not on the primary business of the company. To stretch the point further, it is probable that the investors had invested in Cure.fit without even asking the founders proof of concept, which is usually the case for funding ventures.
Going by their unquestionable faith in the founders, the investors are unlikely to ask them the reason for shedding employees and closing down several centres, but it raises serious doubts about the entire business of funding and therefore, whether the employees should look at start-ups as a long-term prospect.