The Other Side of the Indian Start-up Story

Edited By Vani rao

Salorix sinks without trace after fallout with management and investors

Salorix LogoSalorix, the Silicon Valley-headquartered company with offices in New York and Bangalore, has recently been in the news after it spurned an acquisition offer from Google Inc. (NASDAQ:GOOG) and Facebook Inc. (NASDAQ:FB). Now the data analytics company seems to have downed shutters as it failed to raise fresh capital following a feud between its founder and investors, according to a report in The Economic Times on 4 March 2014.

Salorix was founded by former NASA scientist and IIT Bombay, and Massachusetts Institute of Technology Sloan School of Management alumnus Santanu Bhattacharya in 2009. Salorix raised $3.5 million in Series A funding in 2011. It is mainly involved in developing social media analytics technology and an artificial intelligence platform to understand brand impact.

Its customers included premium chocolate maker Lindt, the world’s third-largest automaker Volkswagen, and the world’s biggest jeans maker Levi’s. It has also worked with Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A) in India to help the insurance provider with its social media strategy.

Salorix was approached twice by Google, first in 2012 and again in January 2013, with an acquisition offer, but Bhattacharya was not impressed by both offers. After Google backed out, Facebook approached Salorix in October 2013. However, by December 2013, the acquisition talks were stalled.

Despite negotiations continuing for several months, both parties failed to reach a consensus on the price of the deal. It was reported that in the end, Facebook poached Santanu Bhattacharya, leaving investors with a few staff to stare at an uncertain future. Madhusudan Therani, who is listed on the company website as the Chief Technology Officer of Salorix, also seems to have quit according to his LinkedIn profile, where the role with Salorix is listed under ‘previous’ jobs.

The analytics space has seen a surge of acquisitions of start-ups lately, which has attracted attention to this booming industry. In December 2013, Apple Inc. (NASDAQ:APPL) bought social data analytics company Topsy for $200 million. Google recently outbid Facebook to acquire artificial intelligence and big data company DeepMind Technologies for about $400 million in January 2014.

Spotlight on Failures

The Salorix’s story puts the spotlight on failures among start-ups. With two new start-ups coming up every day, experts said that it is obvious that not all will survive. The recent developments in Salorix show that the main reason for failure was not due to lack of customers or the absence of a cutting-edge product. Rather it was as a result of the failure of the company’s internal mechanism and fallout between management and investors.

Indian start-ups need to go through a learning curve in terms of finance; many Indian start-ups, in their eagerness to secure funding, give away too much equity (50% and even more) during the very early stages of funding. By the time Salorix closed the financing round of about $0.5 million after its Series A funding last year, the company had given away in excess of 50% in equity. Hence, raising subsequent rounds of funding with declining equity capacity became a Herculean task.

Chasing the Rainbow

Most importantly, investors need to be realistic about their exit strategies, especially for a start-up that is not in any way a breakthrough technology or pioneer in the ever changing tech space. However, investors cannot be solely blamed for what has transpired with Salorix. The management also failed in terms of execution and to deliver on their promise of building sustainable revenue streams.

It is not really uncommon for investors and entrepreneurs to differ on what route a start-up should take, what is good for the company, and what is not. In the case of Salorix, the acquisition offers distracted the management’s attention from focusing on their core product, instead allowing them to spend more time chasing the rainbow in terms of bigger and better revenue opportunities.

In the same vein, the Little Eye Labs acquisition has shown that there is a growing interest from Facebook, Google, and Yahoo Inc. (NASDAQ:YHOO) in acqui-hiring from India. On a final note, one can conclude that the expectations of investors need to be aligned better since these small acquisitions mean a lot for the country’s nascent start-up ecosystem where exits in any form are rare and hard to come by.

Analytics Story in India

Analytics firms in India are grabbing the spotlight, with Fisheye Analytics, Little Eye Labs, and Salorix catching the attention of the bigger tech giants. Hence, one would likely believe that the sector is witnessing a growth phase.

Ecosystem Ratings
Source: World Start-up Report

According to the latest report for 2013, the growth of analytic firms in India and around the globe has been tremendous. Consider the following aspects:

  • 6% of analytics organizations worldwide are either based out of India or have operations in India.
  • The number of analytics companies in India has grown three folds in last 1.5 years.
  • Analytics firms have also grown in size. In 2012, the percentage of analytics firms in India with employee size less 50 was 71%. The number decreased to 66% in 2013.
  • Bangalore still is the hub of analytics in India, though other cities are fast catching up. Bangalore was home to 29% of all analytics firms in India in 2013.
Source: Microsoft Accelerator Program
Source: Microsoft Accelerator Program

Around 379 technology and product companies were launched in 2012, of which 87 closed down their operations. In the past five years, Bangalore registered 591 tech start-ups, followed by Delhi NCR (237), Chennai (203), Pune (149), and Mumbai (136).

Interestingly, Bangalore, which saw the highest number of start-up launches, also registered the highest number of closures, according to the report. Bangalore recorded over 70% closures, followed by Delhi (35%) and Mumbai (25%), and other cities (55%).

Of the total number of companies that closed down, 61 start-ups closed down since they were unable to raise funds; 43 were unable to collect money quickly; 39 found a better opportunity; 28 were unable to bag customers; and 19 start-ups cited founder issues.

On closing thoughts, Indian start-ups are witnessing tremendous growth, with a huge potential and a billion-dollar market to cater to. However, they need to have the right strategy in place to reduce errors at the beginning stage and remain dedicated rather than losing hope and closing it down if not generating revenues.

Start-ups should be about passion and an idea that they can believe will change the world, and not merely function as money-making machines where they run out at the first available opportunity.

Hopefully, we would have more Little Eye Labs than Salorix!

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