ShopX, an Indian eCommerce platform, was once a high-flier, as were many FinTech companies. In the most recent round, the company received more than $54 million and was valued at more than $100 million. It is backed by Nandan Nilekani, co-founder of Infosys, and Fung Investment. Nilekani put up $18 million on his own.
However, the Indian eCommerce facilitator has been unable to get equity money since April 2020. This is consistent with the pandemic’s chilling impact on equity fundraising by inefficient businesses that rely on the promise of growth to attract investors.
According to Indian officials, it has now closed its doors and declared bankruptcy. It also serves as a cautionary note for other B2B marketplaces.
A review of the company’s regulatory records reveals a series of failures that frequently occur in tandem: low margins that destroyed the original business model; a failed shift to consumers; and, finally, an inability to repay the debt that the company was forced to incur in order to stay in business.
Marginally Small
ShopX aspired to play a key role in the co-creation of the e-B2B business. According to a business spokesman, due to the industry’s low margin profile, operations finally proved unprofitable at scale, leaving the company with no alternative except to halt operations.
Despite its popularity, the B2B marketplace business model is challenging. Every platform needs an adequate number of providers and customers, as well as a value offer for each. Platforms must give adequate value for both buyers and sellers in order to generate volume on both sides of the transaction. The volume of trade, like any other market, determines the quantity of liquidity. The network effect, which encourages spontaneous self-sustaining development, can then begin to operate.
Pivot Mistake
Midway through 2021, the company’s core model shifted from a five-year assisted eCommerce solution that comprised sourcing, supply chain management, and a credit line to an eCommerce enablement platform.
To test the crowded consumer internet industry, ShopX launched a cash-back app.
This was a challenging path to pursue for a company that had financial problems, a high burn rate, and limited visibility. Marketing costs are notoriously high in the B2C industry, despite the fact that staunch competitors like Amazon and Flipkart have significant competitive advantages.
Debt
ShopX received a large number of loans from its Singapore-based investor, Fung Investment since it was unable to fulfill its obligations owing to a lack of operating cash flow or fresh investments.
The Industry’s Implications
The failure of ShopX highlights how the potential of B2B marketplaces may be derailed by the constraints of satisfying both consumers and sellers while maintaining margins at a scale that can provide long-term cash flow. Because financial markets have lost interest in unproductive enterprises in today’s investing environment, such entrepreneurs are forced to use debt. The upkeep of such funds is tough owing to rising interest rates.
