🧐 Decoding Zilingo’s Fall: Another Growth Story Gone Wrong?
Zilingo's failure story has been in the news for a year now. But some new information has made the case even more intriguing. ReadOn!
Dealing with the Monday blues?
Well, we've got the perfect remedy: a super interesting story about a startup failure that will get you out of your funk.
This story highlights how growth at all costs could sometimes be deadly.
The story highlights how important corporate governance is for startups.
This is the story of Zilingo.
Grab a cup of coffee and ReadOn!
🔍 The Origin of Zilingo
It all started in Thailand in 2015.
Ankiti Bose, a bright young analyst working at Sequoia, visited Thailand's Chatuchak Weekend Market.
While others shopped their hearts out, Bose identified a market gap.
The sellers in the market had an amazing collection of clothes, but no online presence.
To fill this gap, Zilingo was born.
Zilingo wanted to bring these merchants online and allow them to trade with each other.
And it did not want to stay local. Based out of Singapore, Zilingo wanted to take this to all of SouthEast Asia.
And it did.
By 2017, Zilingo had grown its revenue 10X (YoY) and was growing 25% each month!
It had received Series B funding worth $17 million from some of the biggest investors in the world like Sequoia and Capital India.
The sky was the limit now, and Zilingo was ready to reach new heights.
📈 Zilingo's Growth Story
Bose wanted to take Zilingo to the Moon at any cost. She wanted growth at all costs.
So much so, that she launched a million-dollar ad campaign in Morocco with 9 social media influencers, fancy five-star dinners and a hot-air balloon trip!
The plan? Bring a million users.
Result? Only 10,000 users.
That's a customer acquisition cost of $100!
What's more, to encourage more merchant-to-merchant transactions, Zilingo started offering high discounts.
It was essentially paying out of its pocket to enable these deals.
The idea was that these discounts would onboard people. And once they got used to the platform, they would stick.
Reality? A lot of merchants started booking fake transactions, just to get money from Zilingo.
Zilingo still didn't give up. It introduced loans for merchants to get them.
Now, merchants did avail loans.
But, before they could repay, Covid hit.
So, they couldn't repay.
This spelt trouble for Zilingo.
Now, all of this spending had gotten Zilingo's investors worried.
You see, Zilingo was so busy chasing growth that it wasn't submitting its financial reports.
But the truth came out when Zilingo's money ran out.
Like any child out of pocket money, Zilingo turned to its messiahs: investors.
And to get the money it had to reveal to its investors that its cash burn was an insane $7-$8 million per month!
Investors had no choice but to rescue it by pumping in another $25 million in November 2020!
What did Zilingo do with this money?
Well, that's where things got fishy.
📉 Zilingo's Downfall
Apparently, a lot of this money went into dubious deals and into the pockets of the co-founders.
In March 2022, some employees came forward and revealed to the board of directors that Bose had been authorising sketchy payments and was also misreporting growth and revenue numbers.
So, the board suspended Bose and launched an investigation.
What did the investigation find?
Payments of $7 million to Algo Legal, a legal tech firm, $944K to EbixCash to develop an IT system, and $2.35 million to OneDelta for testing this system.
Umm, what's wrong with that?
For one, there was no particular reason to pay Algo Legal.
Second, Zilingo already had in-house tech, why pay EbixCash to build tech?!
And third, OneDelta was paid to check EbixCash's parallel tech even before Zilingo signed a contract with EbixCash!
Sounds sketchy now?
The worst part, Bose got a 10X salary hike from 2017-2019.
Her CTO and COO also got a 3X and 7X hike.
Without the board’s approval!
After all of this came to light, Bose was fired.
Bose’s reaction?
She alleged that this was a "witch hunt".
She also made complaints that she faced sexual harassment by members of the company.
Whether any of this is true or not, we don’t know.
But Bose got a lot of support on social media at the time.
Some investors, however, believe that this social media drama killed Zilingo.
What started off as an ambitious mission to transform Southeast Asia’s fashion industry is now shutting down.
The company is being liquidated, instead of being acquired or saved.
But we're still left with the question: who's to blame?
🫵 The Blame Game
Well, investors and employees are blaming Bose.
Bose claims she is just the scapegoat here, the convenient target.
In fact, she has recently filed a $100 million defamation suit against investor Mahesh Murthy for alleging that she "took Sequoia's money".
This shows that Bose is not willing to let her reputation sink.
She's not going down without a fight.
But is this a last attempt to cover up her misdeeds? Or is she truly a scapegoat?
A year after the saga, we still don't know.
What we do know is that corporate governance is the need of the hour for startups.
As startups get money in their coffers, they often go the ‘growth at all costs’ route.
Money from investors sometimes becomes both their wings and the noose around their necks. So, they want to grow fast, no matter what it takes.
Corporate governance can be the tool that keeps startups in check.
So, we need to double down on this now!
What are your thoughts on the startup ecosystem? How else can we stop such startup failures?
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