🦄 Mahindra's Rivigo Deal: Are Unicorns in Trouble?
One of India's first logistics unicorn is selling out for peanuts. Is this an official sign that a funding winter is here?
Dear readers, we warned you that a funding winter for startups was coming.
And it looks like it has finally arrived.
Rivigo, one of India's first logistics unicorns, has lost its unicorn status, after an acquisition by Mahindra Logistics.
Mahindra bought the company's B2B express delivery business for Rs. 225 crores, which is much less than its last year's revenue of Rs. 373 crores.
So, why did Rivigo agree to this deal?
😥 Rivigo's Misfortunes
Rivigo started with a unique idea. It wanted to improve the life of truck drivers, a super important but often neglected element in the whole logistics supply chain process.
You see, a lot of truck drivers are opting out of the profession because of long working hours and discomfort related to the profession.
98% of truck drivers don't want their family members to take on the job because of how bad things are.
So, truck drivers are declining. And the ones that are still in this profession are overworked, which often leads to accidents.
In a country where the majority of the deliveries take place through roadways, this spells disaster.
Enter: Rivigo.
Rivigo wanted to make deliveries faster and drivers' lives easier.
So, it introduced a relay system.
This worked exactly like the relay race in your school.
A driver starts out with one truck from Point A and drives it till to the nearest pitstop (some 8-10 hours away). From there another driver takes on, driving the truck to the next pitstop and so on, until it reaches its destination.
This way not only do the drivers get adequate rest, the shipments also move faster because drivers are not taking frequent stops and driving slowly.
Sounds like a win-win situation, but Rivigo's asset-heavy model meant significant losses for the company.
Unlike most of its competitors like BlueDart and Gati, who don't own a lot of fleets but rather contract or rent them, Rivigo has a large fleet, making it asset-heavy.
Managing this fleet, running pit stops for drivers, plus handling its tech-based solutions to find quicker delivery routes, left Rivigo with a monthly cash burn of Rs. 15 crores.
Investors didn't like this. They wanted the company to cut down costs and work toward profitability. So, the company began transitioning to a relay-as-a-service model, where it allowed other fleets to use its tech and employ the relay delivery system.
But Covid came and though all logistics companies were impacted by the lockdowns, Rivigo had it worse than most.
It had to burn cash to pay off vehicle EMIs and other costs that came with owning a fleet at a time when revenue was slow. And fighting competitors wasn't too easy for the company either.
It started relying on its relay-as-a-service model, but that didn't work too well either.
The quick shift didn't find favour with a lot of Rivigo's existing clients, who abandoned the company.
And just like that, the unicorn began struggling.
It started looking for more funding to continue running but by then the VCs had become more cautious.
So, it found no funders, new or old.
Next step: Find an acquirer.
You see, it was clear that the company could not run independently. It needed someone to take it over and it was ready to take a haircut for this.
It talked to many companies like Flipkart and FirstCry but there were no takers for Rivigo's business.
Until Mahindra Logistics entered the picture.
🔍 Why is Mahindra Buying Rivigo?
Mahindra isn't buying the whole business, Rivigo will still retain its fleet and its full truck load operations.
Mahindra will get the Rivigo brand, all its customers, teams, assets, tech. Sounds like a steal for Mahindra, no?
And while Rivigo couldn't use these assets to make things work, they could be of immense help to Mahindra. The logistics company is among the top 5 in India and is constantly working towards getting more market share.
To achieve this, it has been trying to get into e-commerce, quick commerce and grocery deliveries. Rivigo's tech and its pit stops could help the company achieve this and gain an edge over its competition.
Also 29% of Mahindra's current revenue comes from warehouses. But this revenue stream could dry down a little this year.
Because data shows that e-commerce firms' demand for warehousing is decreasing as they expect a slowdown in customer demand (due to the current inflation and a possible recession).
So, doubling down on transport and logistics makes sense for the company.
However, Rivigo's slump sale, where the company basically had to sell out everything for pennies, spells out a message of doom for a lot of startups.
Till now startups were treated like the youngest child of the family. VCs and investors were very indulgent with them.
No matter how much cash they burnt, investors backed most of their startups, supporting them through thick and thin.
But now VCs are starting to lose out money so they have no choice but to be strict.
VCs like SoftBank are now not just cutting funding but also reducing the valuations of their portfolio companies like Oyo (its valuation was cut down from around $10 billion to $2.7 billion).
So, startups now need to start focusing on profitability. But will they be able to do this soon enough?
⚡In a line: Rivigo is one of the first major unicorns to feel the chills of the funding winter and has to sell out for pennies.
💡Quick question: Should startups now start focusing on profitability instead of growth?
Share this with your friends via WhatsApp or Twitter and help us grow! See you tomorrow :)
You can also listen to our stories. Catch it on Spotify, Apple Podcast, Amazon Music, Google Podcasts, Gaana or Jio Saavn.
If you are coming here for the very first time: Don’t forget to join us on WhatsApp to get daily updates! 👇