Indiaplaza.

com: How an Indian ecommerce firm ran out of cash

Posted by Guest Author On July 9, 2015 Filed under All, Guest Posts No Comments

Before the Bansals and Bahls, there was Kothandaraman Vaitheeswaran. And then he
just fell off the grid.

Kothandaraman Vaitheeswaran and Indiaplaza.com, among the first e-commerce

firms in India, survived the dotcom boom and bust but failed later due to lack of
funds. Photo: Hemant Mishra/Mint
He had been contemplating it for a while.
After all, there is only so much a man can take.
The office rent was overdue. For three months. Almost Rs.6 lakh. The landlord had run
out of patience. So had the 10-month deposit money for the lease. There was money
due to suppliers as wellsome 50 of them. Almost Rs.60 lakh. The suppliers had
waited long enough. And now their pestering calls had taken a slightly demanding turn.
Customers were complainingon social media, review websites and to whoever cared
to listen. They had ordered things and paid online, but they had not been delivered.
Suppliers wouldnt ship incoming orders unless their dues were cleared. But customers
didnt care; they wanted to know why the products hadnt arrived. They kept calling
customer support, the office landline. Relentlessly. And they wanted their money back.
But nobody would answer.

Over the last 18 months, almost 95% of the staff at Indiaplaza.com had quit. Taking up
whatever assignment came their way, leaving behind a sinking ship where they were
tired of delayed salaries, and for some months, no salary at all.
Kothandaraman Vaitheeswaran, the founder and chief executive officer of Indiaplaza,
had nowhere to go. Nothing left. Except a modicum of dignity.
He had been contemplating the reality for a while. That there was no getting away from
it. Indiaplaza had to vacate its office: 2nd floor, No21, Brigade Square, Cambridge
Road, Halasuru, Bengaluru-560008.
He zeroed in on 12 August 2013, a Monday. Like every other Monday, Vaitheeswaran
walked into office early. Around 8.30am. With his laptop bag. His stained, green jute
lunch bagthe one thing he always carried, lunch from home, packed by his wifewas
missing. Because Vaitheeswaran wasnt hoping to stay for long. He just wanted to get it
over with. Once and for all. And go home.
But then, whats bad can only get worse.
By about 9am, six other people, the only ones remaining at Indiaplaza, trickled in.
Then, came the landlord, with a few of his men, to ensure that everything was in order.
He spotted two laptops lying in a corner. I am taking that, he said. Vaitheeswaran was
okay with it. After all, he owed him money.
While the rest of the staff got down to packing the books, computers, phones, printers,
speakers and whatever else was left, Vaitheeswaran sat quietly observing them. Then
at about 10.30am, the first call came. From a supplier.
News had spread that Indiaplaza was vacating its office. The supplier wanted his
money. So did a few others. He said he was on his way to the office along with the
others. By about 11.30am, the office was teeming with angry, anxious men, keen to get
their dues.
Vaitheeswaran protested and pleaded. I have no money, he said. But I am not going
anywhere. I will still be available on the phone. We are vacating this office only because
we have no money to pay rent. If we had the money, we would still be here.
Though angry, the men relented. But they didnt want to leave. Certainly not emptyhanded. Not without laying their hands on whatever little was left. Some picked up the
desktop computers, others the few laptops, speakers, phones and printers. And
someone took the bronze Ganesha idol from Vaitheeswarans desk.
A bad dream
It hurt. To see all of it. But Vaitheeswaran didnt utter a word. Nothing at all.
By about 1pm, the commotion was over. The office was empty. Almost nothing left to
pack or take home. Everyone had left except the landlord. And Vaitheeswaran knew it
was his turn to leave.
And just like that, he walked out of Indiaplaza, one of Indias first e-commerce
companies, which started life in 1999 as Fabmall.com. A company which he had built
from scratch, with five other friends, with no rule book on how to build an Internet firm. A
company that had survived the dotcom boom and bust, 9/11 and the global economic
meltdown. A company into which Vaitheeswaran had put in the best years of his life.
Once home, he couldnt fathom what had come to pass. Perhaps it was all a bad
dream? A bad night? Because it couldnt be happening. No. Not after toiling away for 14
years. That would be so unfair. This wasnt supposed to be his destiny. E-commerce

had finally become big, it was going to become bigger, and he was right in the thick of it,
after 14 long years.
Thats called vision, right? Thats what they call a pioneer, right? No. It cant end like
this. At that very moment, Vaitheeswaran felt a mix of emotions that only a man who has
lost something really dear to him can feelan equal measure of anger, frustration,
helplessness and bitterness.
But it was real. The story of K. Vaitheeswaran, a pioneer of e-commerce in India, who
was far ahead in the game compared to Flipkart or Snapdeal, but eventually lost the
race.
It is the story of a headstrong entrepreneur, who had his own ideas on how to run an ecommerce business but made the mistake of over-relying on venture capital funds and
perished. This is also the story that questions the very tenets on which the e-commerce
industry has flourished in Indiacash burn, frenzied fund-raising and cash on delivery.
But, most importantly, this is a story about failure and how bitter it can be.
And it all started when things were going rather well.
Search for $5 mn
There were no signs of trouble. Indiaplaza was cruising along fine.
Though his business was small, compared to Flipkart and Snapdeal, Vaitheeswaran
was happy in his own little universe. The company employed about 30 people, and
according to documents filed with the Registrar of Companies (RoC) in March 2011,
Indiaplaza had a gross merchandise value (GMV) of Rs.14 crore. GMV is a term used in
online retailing to indicate total sales of merchandise through a particular marketplace
over a certain time frame. The companys revenue was Rs.3.8 crore. And it recorded a
loss of Rs.1,179,795.
While Indiaplaza was present across most categories, such as books, electronic
products, consumer durables, Vaitheeswaran wanted to grow faster. So, he went to the
market to raise money.
In April 2011, Kalaari Capital Advisors Pvt. Ltd invested $5 million in the company. Or
about Rs.25 crore. As part of the transaction, Kalaari picked up two board seats.
After the investment, Vaitheeswaran immediately got down to putting the money to good
use. So, he hired more people, allocated some money in upgrading the website,
invested in marketing, launched a microsite called ThinkDigit within Indiaplaza
specifically dedicated to tech products, and after much back and forth (and contrary to
his original belief), launched cash on delivery (COD) as an option for consumers.
Considering that he had wanted growth, Vaitheeswarans plan worked out pretty well.
Within a year, Indiaplaza grew to about 130 people. And business increased by almost
174%. The company recorded a GMV ofRs.38.4 crore, as on 31 March 2012.
But a close analysis of the books reveals a less rosy picture. In pursuit of GMV,
Vaitheeswaran had sacrificed making money. Or rather conserving some. As of 31
March 2012, Indiaplazas revenue dipped by almost 25% toRs.2.9 crore. The companys
loss grew massively. Not two or four times, but almost 10 timestoRs.9.25 crore.
Indiaplaza, which used to be small but happy in its little cocoon, was now, all of a
sudden, bleeding. And bleeding profusely.
Needless to say, Vaitheeswaran desperately needed someone to come in and fund the
losses. So in July 2012, within just a year of raising money from Kalaari, he set out on
the road once again.

Lets put this in perspective. For a company which raised all of Rs.40 crore in 14 years
of its existence, this was a daunting challenge. All its earlier rounds were led by the
question: perhaps, we should consider this investment? This time around, the sentiment
was: we need the money. Now.
It is not like Vaitheeswaran was asking for the moon. He wanted just $5 million. OrRs.26
crore.
Over the next three months, Vaitheeswaran travelled across India, from Mumbai to
Delhi to Chennai and Hyderabad, selling the Indiaplaza story to whoever let him in.
His pitch was simple: Indiaplaza is a well-known brand; it means the marketplace of
India, you cant have it better than that; while the company is making losses now, it will
use the money to grow its GMV and cut its losses; over the next two years (by 2014), it
will look at achieving profits.
Nobody bought into it.
Downhill journey
By October 2012, things had become difficult. Indiaplaza was running out of working
capital. So Vaitheeswaran stopped drawing his salary. That was almost Rs.2.5 lakh per
month saved. But employees needed to be paid. Same for suppliers. Soon, that too
became difficult.
Even as all this was happening, Vaitheeswaran was spending most of his time outside
the office, trying to meet as many potential investors as he could. Swiping his personal
credit card for flights and travel. In all, he met about 30 people. Most of them were
happy to spend time and sit through his PowerPoint presentation but unwilling to put
money on the table.
Then, in November 2012, one investor came along and signed a term sheet.
Vaitheeswaran was relieved. Mighty relieved. Finally, he thought, his effort had paid off.
And then he waited for the money to be credited. Every week, every second day, every
moment, late in the night, he waited, hopeful that tomorrow will be the day. A day when
he wont have to worry any more. But that day never came.
Seeing where Indiaplaza was headed, on 3 December 2012, both directors from Kalaari
Capital resigned from the board.
Starting 2013, the Indiaplaza story went further downhill. One miserable day. After
another. People started quitting, debts piled up and Vaitheeswaran found himself
cornered. He had knocked on every door he knew and returned empty-handed. Then
came the fateful Monday, 12 August 2013, when Indiaplaza vacated its office. But
Vaitheeswaran still had some fight left in him. He hit the road again to see if anyone
would be interested in buying whatever remained of Indiaplazathe brand name,
software solutions and even the customer data.
Again, there were no buyers.
Vaitheeswaran was confounded. Bitter. So on 8 December 2013, he sent out his
resignation letter to R. Parameswaran, an investor in Indiaplaza and the longest serving
director on the companys board. Parameswaran didnt acknowledge the email.
Vaitheeswaran didnt care to follow up.
Swept away by the current
It is late in the afternoon. And our meeting is set in an unusual placeinside a
gymnasium at Vaitheeswarans residential complex in Ulsoor, Bengaluru.

We help ourselves to beige plastic chairsone for each of us and one for the tea, in a
thermos, and a few paper cups. Vaitheeswaran is about 58, dark, bespectacled, cleanshaven and dressed in an untucked white shirt, dark blue trousers and leather sandals.
At 53, he isnt the entrepreneur you run into these days but he comes across as easygoing, sprightly and thoughtful.
That is till the subject of Indiaplaza comes up. And it is not about the good or the bad
days; Vaitheeswaran is okay discussing how Indiaplaza went down. He understands
that it is business, after all. An entrepreneur starts a business and runs the risk that it
wont work. Thats fair game. What he isnt comfortable with is how the whole fundraising bit went down. The term sheet that never materialized. And that not a single
investor found value in what Indiaplaza had achieved or its potential going forward.
See, I am not comfortable going there, he says. But what I can say is that specifically
nobody tells you that they will not invest. But when you meet enough of them, you
realize that they are not very enthusiastic about the whole thing. Unfortunately, if you
know that fund-raising is going to be difficult well in advance, then you try and take
certain steps. If you dont, then it becomes too late and after some time, the whole thing
just gets out of control. The collapse happens reasonably quickly after that.
People follow their heart and their decisions. But it left me in a difficult situation. For
investors, it is a portfolio. But for an entrepreneur, for me, it is my life. That is a
fundamental difference. An investor can write off and do portfolio management. Their
portfolio is my life. And thats a difficult thing to come to terms withthat your life is
somebody elses portfolio.
I sometimes ask myself: investors must be truly visionary, right? Here is a company
which is making massive losses, perhaps it will become big, lets put money here. And
then, here is a company, marginally profitable, will do better going forward; lets avoid
them like the plague. This has to be incredibly insightful, right?
But you werent profitable when you were asking for money?
That is my point. If we were the old company making small profits and we had failed to
raise money, we would have survived. Small but profitable, it is all right, you can live. If
water is above your head then all it requires is one miss and then the current will sweep
you.
While Vaitheeswaran firmly believes in what he says and he is a man of firm beliefs, it
will be twisting the facts to say that Indiaplaza was making small profits. No, it wasnt.
Not in the last five years of its existence. In those years, it was making small losses.
Push Vaitheeswaran a little and he says that he doesnt remember and then that the
company was marginally profitable. Not in 2012 or 2011, but before that. Nope. But then
this is something that has come up time and again, that entrepreneurs like to overstate
things. Perhaps thats how they are wired.
Profit, the bedrock
None of which, though, should underscore an important point that Vaitheeswaran
makes.
Something which really weighs him down.
First, it is not easy to close a business in India, he says. But I think that is another
story. But, I suddenly got grappled and left behind with a whole lot of mess that for some
strange reason was only my responsibility. And I felt that to be, at the very least,
extremely unfair. So I can live with the fact, with great disappointment that I didnt make

much of the opportunity. What I cant live with is that I was the sole person to answer to
so many people the company owed money to. Nobody helped.
I didnt owe anyone any money. The company owed money. And the company had a
board and investors. It wasnt just me. So there is a fine difference, because if it is a
proprietorship, then you cant distinguish. In a company, there is a significant
difference.
Why arent e-commerce companies making money? Are profits the bedrock of any
business? Because if thats the case, then the current ecosystem simply defies that bit
of conservative logic.
The short answer to your question on whether profits are important is yes, he says. A
company that is not profitable has no business to exist. And I am not saying Day 1, but
a reasonable period of time; the goal must be profits. No other goal, including sales,
growth, number of consumers, valuation or fund-raising can replace profits. Because
profits allow you to control the destiny of the company. Without profits, you may pretend
it is in your hands but it is not. Your destiny is controlled by your ability to constantly
raise money. Because somebody has to fund the losses, right? Losses dont get funded
by miracles.
It is quite possible that things have changed. And maybe businesses are meant to lose
money, the more you lose, the better you are, and if you lose it quickly, then you are big
and smartI am not able to see the smartness there. I may be in the universe of one;
the whole world thinks that the way to run an Internet business is to lose money, hand
over fist, because people love such businesses. But I have thought long, hard and deep
about it and I havent been able to change my mind and something tells me I am right.
But
See, I am speaking from experience. I started an e-commerce consumer company in
1999. Six months before the dotcom boom. E-commerce was the flavour of the month.
Nine months later, it was a four-letter word. Nobody wanted to talk to us. On Black
Friday, 14 April 2000, the value of companies didnt drop by 5 or 10%, it dropped by
60%. Thats how businesses crash. Because all it requires is the mood to change. I
have seen it change.
From June 1999 to March 2000, people were looking at us as if we were miracle guys.
We were the cover story of a business magazine six months after starting a business.
There were so many stories and then after April, for the next three years, nobody
wanted to speak to us. I have seen the ups and downs and it is brutal. Not one new
Internet company in India has gone through tough times yet.
A mugs game
You know, you have strong views on subjects. Like charging customers for delivery and
youve been proved wrong on that
I have strong views but I have spent considerable time thinking about them. And I
argue from zero base. If you look at e-commerce companies today, the way most
companies do their arithmetic. They say I will spendRs.100 to acquire a customer and
lose Rs.20 on the transaction to reach this customer, and I will spend Rs.200 to reach
out to this customer; so aboutRs.320 Ive lost, but I have got him. But over the next 18
months, or whatever, the Excel sheet says I will sell this customer stuff at reasonable
gross margins to recover the Rs.320 and thereafter I am home and dry. Then I make

money hand over fist. The arithmetic never appealed to me. There are fundamental
flaws.
If an e-commerce firm publishes this Excel sheet and says this is my plan for you, the
customer: when you buy from me, I have lost money. But now, you better buy from me
eight times so that I can recover my money. If the customer signs up for this, then I think
it is a great idea. But nobody has told the customer. Tomorrow, somebody else comes
along, cheaper, the customer will go buy from him. Then I have to look for another
customer and spend another round for his acquisition. Thereby, it is a mugs game. This
is fiction.
But the argument is you will get used to my level of convenience, selection
No. The argument works perfectly when you are the only website left. A consumer
behaves like a normal man. Another website comes along and he buys from the
cheapest place. Everybody wants to be the last man standing but today there are three
last men and two of them will fall. I think we are just cheating ourselves by saying that
customers will pay for convenience.
Amazon?
Sure. They are the largest e-commerce company. Yet, there are more people in
America not buying from Amazon than buying from Amazon. I am willing to bet. (Ecommerce makes up for only 6.6% of all retail sales in the US.) All those people who
dont buy from Amazon or are buying from others, you think they havent bought from
Amazon even once? Of course, they have. Was their experience bad? Of course not,
that is the one thing Amazon has got spot on. But customers are the same everywhere.
If somebody offers a lower price, they go. He doesnt say Im the guy who pays for
convenience and brand. Of course not.
The flip side of COD
Well, you got cash on delivery (COD) wrong, didnt you? You were pretty stuck up about
not doing COD which changed the face of e-commerce in India.
My view on COD has not changed. I think it is fundamentally inconvenient to
customers. The premise of shopping online is convenience. People use COD because
they dont have credit cards. We were the first to experience COD in 2002. In 2004, I
withdrew it. Because the administrative hassles were a pain. Then I had data that
customers who were buying on credit cards were now buying COD, why should I do
that? When the COD explosion happened in 2008
Yes, people took to it in a big way
Not because of COD but because it was cheap. Even today, I challenge any ecommerce company to say that I will offer COD and I will sell on MRP (maximum retail
price). Lets see how many people do that. It was a massive marketing spin. COD is an
inconvenient way of buying. Why should you bother with cash when the guy comes
home? And I have a flip side, give me your address and I will buy a refrigerator on COD
for you. You deal with it, the return and everything else. When you pay by card, none of
this happens. And we saw this happening. Let me order five refrigerators for you. Dont
want it, return it. Want it, pay cash.
But with COD, companies are reaching out to people in tier-II and III cities
Wrong. At least 200 million people have debit/credit cards in the country. (As of April
2015, 554.7 million debit cards were issued in India. The number for credit cards stood
at 21.3 million.) How many of them shop online? 20 million. 90% of card holders in this

country still dont shop online. I am willing to bet the 20 million shopping, half of them
have cards. This is not fiction. It is data.
The way we are wired
Strange, you have all the answers and no business
Yes. I should be in a quiz contest. We live and learn.
Have you ever met the Bansals of Flipkart? Or Kunal Bahl of Snapdeal?
No. Must have said hello to them.
Still in touch with people who were on the board at Indiaplaza?
No.
They never reached out?
No. Nobody.
Why?
Whats there to reach out? I think as human beings, all of us have a very high estimate
of ourselves. We all fall prey to it. It is not ego. It is the way we are wired. So I may be
thinking, I am the pioneer in e-commerce, there is so much to learn from me, those guys
should reach out to me. They must be thinking, who is this guy? No, nothing to learn
from him.
Vaitheeswaran isnt very busy these days. Not since Indiaplaza went down. He spends
a lot of time at home. And then he does some intermittent consulting work for
companies who are looking at setting up an online business. Vaitheeswaran wouldnt
name them but says they are big brands.
And whatever he does with them is enough to put food on the table. And then there are
a few tech product start-ups who I mentor, he says. Not for money but just to keep the
passion alive.
Weve been chatting for two-and-a-half hours. It is pretty dark in the gymnasium. The
lights havent been switched on.
I would be lying if I said I dont think about the past, he says. You need to be thickskinned to be an entrepreneur.
Learning from loss
It is not so much the past as the present that bothers him. Where he is all by himself,
doing whatever little he can because no one finds value in what he did at Indiaplaza.
Because he is a failure.
It is a big problem, Vaitheeswaran says. I dont think entrepreneurs ever fail. I think
companies fail. We have to differentiate. India lacks that culture. Here, the
entrepreneurs are closely associated as the face of their company, that the companys
success or failure is the success or failure of the entrepreneur. Entrepreneurs always
succeed because the experience of founding a company, growing it to a certain stage,
building products, technologies, building processes, getting your first customer, raising
funds, building a brand thats skill, right? Those experiences are invaluable.
If I was in Silicon Valley and something like this had happened, I would be
overwhelmed by people looking to hire me. This is an important culture thats lacking in
India. Nine out of 10 companies fail, which means more start-ups close than succeed.
Are all these people failing? Of course not, they are all succeeding.
But in India, you are treated as an outcast. Because I am a failure. Because the
company I founded closed down. Which I find quite stupid.

End note: As part of research for this article, emails were sent to a few shareholders
and former board members of Indiaplaza. To seek their perspective on Vaitheeswarans
entrepreneurial journey, or if thats a difficult conversation, then just their thoughts on
failure.
Many didnt find it worth their while to reply and only one response came infrom Vani
Kola (a former Indiaplaza director nominated by Kalaari Capital Advisors).
Failure is a reality. We have examples of some entrepreneurs who have started new
companies even when the first ones failed. If they have learnt from the process, it can
be helpful to succeed.
Originally published in Livemint by Ashish K. Mishra. Find the article here.
(Source : http://startupsutras.org/) TiE Bangalore website