GoZoomo

What did it do?

GoZoomo, formerly Zoomo, was a mobile-based peer-to-peer marketplace that let buyers purchase inspected used cars directly from their owners without paying a broker. The company operated in Bengaluru, Mumbai, the Delhi capital region, Pune and Chennai.

Why did it shut down?

In the peer-to-peer model, sellers' price expectations and buyers' offers often diverged, and standardising prices proved impossible. Only 20 per cent of listings turned into sales, which was not enough to carry the model's costs. In December 2015 the company turned to earning revenue from inspection fees and after-sales services such as ownership transfer and insurance, and laid off more than 130 call centre staff. These changes did not fix the unit economics either, and no attractive acquisition offer came along. In August 2016 the founders closed the company and returned the remaining money to investors.

The story

In 2014 Arnav Kumar and Himangshu Hazarika, graduates of IIT Kharagpur, and Aniket Behera, a graduate of IIT Bombay, founded a used-car marketplace in Bengaluru called Zoomo. The company later took the name GoZoomo. The idea was to free used-car buying and selling in India from brokers: buyers would purchase inspected cars directly from their owners.

SAIF Partners made a USD 1 million seed investment in December 2014 and put in another USD 5 million in July 2015. After Bengaluru, the company expanded to Mumbai, the Delhi capital region, Pune and Chennai.

But the peer-to-peer model had a fundamental problem. Every car and every seller was different; sellers' price expectations and buyers' offers frequently needed revising, and standardising prices proved impossible. Only 20 per cent of listings were turning into sales. In December 2015 the company turned to earning revenue from inspection fees and after-sales services such as ownership transfer and insurance, and laid off more than 130 people in its call centre. Although it reached 3,000 users with an average transaction size of USD 7,500, the numbers did not add up.

In August 2016 the founders decided to close the company. They had explored acquisition options but found no attractive offer. According to reports, more than half the money they had raised was still in the bank, and the founders returned what was left to investors. The remaining 65 employees were paid seven weeks' severance and helped to find new jobs. Alok Goel of SAIF Partners praised the founders' transparent approach as a mature decision.

GoZoomo is remembered as one of the rare companies in India's start-up ecosystem held up as an example for returning investors' money when it closed.

Lessons for founders

• For second-hand goods without standard prices, a peer-to-peer model does not scale without a pricing mechanism that brings buyers' and sellers' expectations together; solve price discovery first.
• Conversion rate is the foundation of unit economics; with a listing-to-sale rate of around 20 per cent, work out your break-even point before spending money on growth.
• If the model is not working, closing while there is still money in the bank and returning what is left builds a reserve of trust with investors for the founders' next venture.

Sources

1. GoZoomo Shuts Shop Citing Unit Economics, Rivals Droom and Spinny Remain Keen On Market (Inc42)
2. GoZoomo shuts down citing unsustainable unit economics (MediaNama, 2016-08-26)
3. With millions still in the bank, why is Indian start-up GoZoomo shutting shop (Business Standard, 2016-08-26)
4. By returning investors' money on its closure, GoZoomo sets example for Indian start-ups (The News Minute)

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