They had just been told the company had just about Rs 3 crore left and they were burning a cool Rs 1.2 crore a month. Things were desperate.
The company managed to get a bridge round in January. To stem the cash burn, 40 staffers were asked to leave and several more resigned. All good now? No. Fast forward to April and the company downed its shutters and bookmarked another failure in the ed-tech ecosystem. The company raised about Rs 15 crore in its lifetime. Not a lot in the current climate but it was possibly one of those which was too early for its time. Also, it tied itself to the inflated valuations game.
Let’s begin with the beginning. Purple Squirrel was incubated at IIT (Indian Institute of Technology)-Bombay in September 2013. It was founded by Aditya Gandhi and Sahiba Dhandhania. They wanted to start a company which took students on industrial visits across the country. The duo wanted to focus on learning. They wanted to take students to companies where they would get a leg-up when they finally graduated.
“The long-term plan was to get students placed in these companies and get a commision for headhunting. But that was after it hit a critical mass,” said a former employee.
With that idea, Gandhi sent a team of sales executives with brochures to colleges. The executives tried to sell the idea to the professors and the student body. Most times, they were turned away.
“Students didn’t want to learn on these trips. They didn’t want to go to Hyderabad or Chennai. They wanted Manali and Goa,” said the ex-employee. So, every time the professor agreed, the students nixed it. But the company managed to make Rs 3 crore in the March quarter of 2015. “The margins were really good. Almost 20 per cent,” said the ex-employee. The company would find “reasonable accommodation” near the client and keep the costs low.
Encouraged by this, Matrix decided to invest Rs 12 crore in April. Sources said Purple Squirrel was under pressure to achieve a target of Rs 30 crore by 2015-16.
To achieve this target, Purple Squirrel needed volume and quickly. It now started focusing on taking students to tourist destinations just to get them on board.
“But that meant you were competing with travel agents. Most colleges usually tied up with travel agents for industrial visits and had a cost structure in mind,” said the employee. These travel agents bought inventory in bulk from hotels in popular destinations, something Purple Squirrel couldn’t do as it didn’t have the volume. To be competitive, Purple Squirrel had to burn its own cash. The margins started to disappear. Students got their parties but the music was not playing for Purple Squirrel anymore.
Matrix, sources said, had promised another round of investment in September if the company had hit the Rs 15-crore revenue mark. “We couldn’t even reach a third of that,” said another former employee. The investors refused to take the lead on the round. The Series B plans collapsed. So in November 2015, the co-founders started hunting for other investors.
“The valuation of the company was too high. Almost 15 times their revenue. I could see merit in the business model but not the valuation. A down round was not on the table at the time,” said the managing director of a Mumbai-based venture capital firm that Purple Squirrel approached multiple times.
Sources said the co-founders, in their desperation to be relevant, started the hit-and-hope approach. “We were told to launch a LinkedIn for students. Where they listed their skills… a résumé of sorts,” said a former employee. “And as soon as the development was done, it was launched without testing or a focus group.”
But it wasn’t an idea that would bring revenue immediately. It depended on scores of customers using the services.
“This was the time when we needed to tie up with colleges on multi-year contracts and that’s where we hit another roadblock,” said another former employee. Colleges wanted names of companies and when the students could travel there. And Purple Squirrel couldn’t give them that. Most Fortune 500 companies, sources said, had processes in place. They wouldn’t give approval until 45 days before the visit. Why? “Most who had a factory floor couldn’t guess what would happen in a year or six months in advance. If they had a huge order, no one would be allowed inside,” said an employee part of the sales force. Those companies which did agree didn’t pass muster with the colleges. “All colleges want to put ‘our students visited Maruti or Wipro’ in their prospectus. Not a no-name automobile ancillary company,” said the employee. And in December, the founders called a meeting to brainstorm. The industrial visit season was now ending. Cash flow had slowed to a trickle.
In January, it got a bridge round of about Rs 2 crore from its investors. The layoffs came and the founders got on a path to sell the company. They approached two prominent tour operators.
“Think about it, a tour operator, which makes crores in sending families to Europe, will have to hand-hold teenagers in vacation cities… it is laughable,” said an employee who quit after the bridge round.
The company, which held great promise, was heading to a place where they were losing staff and had no way to make money. It was March, it was exam season and no industrial visit was possible. There was no way to generate a sale and in April the two founders decided to call it quits.
Business Standard tried to get in touch with Gandhi but emails and text messages were unanswered.