The relentless impact of the Covid-19 pandemic has thrown countless businesses and individuals into a whirlwind of trouble. One such company is NestAway, the Indian e-commerce platform for shared home rentals. The impact has been so severe that NestAway, once valued at an astonishing $227 million, is now being acquired by Aurum PropTech for a mere $10.9 million. The acquisition of NestAway has been approved at a jaw-dropping valuation cut of 95%. This astounding drop highlights the immense challenges faced by the home rental startup amidst the relentless storm of the Covid-19 pandemic that has changed the market dynamics for almost every sector.
In a bold move, Aurum PropTech’s board has given the green light to the acquisition of NestAway, agreeing to pay a substantial sum of up to ₹90 crores ($10.93 million).
But that’s not all. Aurum PropTech Limited (formerly Majesco Limited) is not merely interested in acquiring NestAway; they’re determined to breathe new life into the ailing venture. To stabilize the business and ensure its resurgence, Aurum PropTech plans to inject an additional ₹30 crore into the Ratan Tata-Backed NestAway. This financial boost could prove to be the turning point in their fortunes.
“This capital infusion in NestAway is a testament to Aurum PropTech’s conviction in India’s $20-billion Rental Housing market,” Aurum said in a National Stock Exchange (NSE) filing.
Aurum PropTech made headlines on May 26, 2022, when they acquired a 100% stake in HelloWorld Technologies, a subsidiary of NestAway Technologies, for approximately ₹38 crores ($6.8 million). HelloWorld Technologies, one of the largest co-living companies in India, specializes in providing co-living spaces for students. Within a remarkably short span of one year, Aurum PropTech swiftly proceeded to acquire the parent company, NestAway, solidifying its position in the industry.
Rise of NestAway 2015-2019
A group of visionary individuals came together to tackle a common problem that plagued countless young people, especially bachelors, in big cities: finding a home. Thus, Nestaway was born in January 2015, the brainchild of Amarendra Sahu, Deepak Dhar, Jitendra Jagadev, and Smruti Parida. A revolutionary startup that set out to redefine the concept of home rentals for singles.
NestAway has strategically positioned itself as a leading marketplace for “managed home rentals”. One key aspect distinguishing the startup is its commitment to providing fully furnished houses with zero brokerage.
In addition to its groundbreaking approach to shared home rentals, Nestaway goes above and beyond to ensure peace of mind for both tenants and property owners. With a commitment to safeguarding the interests of all parties involved, Nestaway offers an exceptional benefit: damage insurance coverage of up to ₹1 crore if the tenant damages the property.
NestAway funding history
NestAway experienced rapid growth and success shortly after its launch, attracting significant investments from prominent investors.
In just seven months since its inception, NestAway secured two funding rounds totalling ₹84 crores (approx $13.25 million). The majority of this funding, around ₹76 crores (approximately $12 million), came from Flipkart and Tiger Global. The rest of ₹8 crores ($1.25 million) was contributed by IDG Ventures, InMobi founder Naveen Tewari, and former Helion angel Kanwaljit Singh.
In April 2016, NestAway further bolstered its financial backing with a $30 million Series C round led by Tiger Global. Notable investors such as Yuri Milner (founder of DST Global), IDG Ventures India, and Sujeet Kumar also participated in this funding round. With this round, NestAway’s total funding reached approximately $43.2 million.
In March 2018, NestAway secured nearly $51 million (approximately ₹330 crores) in Series D financing. The investment came from global investment bank Goldman Sachs, UC-RNT Fund (a joint venture between Ratan Tata’s RNT Associates and the University of California), Schroder Adveq, as well as existing investors IDG India and Tiger Global. This impressive funding round propelled NestAway’s valuation to a range between $180 million and $200 million.
In May 2019, NestAway announced its ongoing Series D round, aiming to raise ₹69.85 crore (close to $10 million). The investors participating in this round were Chiratae Ventures and Tiger Global Management. Later in September 2019, NestAway raised an additional ₹34.92 crore (about $5 million) from Goldman Sachs as part of its ongoing Series D funding.
These investments served as a testament to the potential and promise of NestAway, solidifying its position as a significant player in the online home rental market.
NestAway acquisitions
NestAway made significant strides through strategic acquisitions and investments in order to kill competition and expand its market presence across India.
In May 2017, Nestaway, a two-year-old home rental start-up, acquired Zenify, a smaller rival in the industry. The acquisition, carried out for an undisclosed sum, aimed to expand NestAway’s portfolio of services to cater specifically to families.
In September 2019, NestAway made another notable investment of $10 million towards its co-living and student-living entity, HelloWorld. This entity was led by Jitendra Jagadev, who is not only a co-founder of NestAway but also the founder of HelloWorld.
A notable distinction between the Hello World and NestAway models lies in their operational approaches. In the Hello World model, the company leases and manages all properties directly. This means that Hello World takes complete ownership and responsibility for the properties it offers to tenants. On the other hand, NestAway operates as a marketplace, allowing anyone to list their properties on the platform for prospective tenants.
Continuing its expansion efforts, NestAway Technologies acquired ApnaComplex in February 2020. ApnaComplex, a company with a decade of experience, managed over 20,000 housing societies across 80-plus cities, primarily in major metropolitan areas such as Bengaluru, Delhi-NCR, Mumbai, Pune, and Hyderabad. This acquisition enabled NestAway further to strengthen its presence in the real estate management space.
Somewhere between March and June 2020, Nestaway Technologies’ co-living subsidiary, The HelloWorld, expanded its portfolio by acquiring StayAbode. With ambitions to increase its capacity to 50,000 beds by March of the following year, HelloWorld actively sought additional acquisitions to support its growth strategy.
Now the question arises, what exactly went wrong with NestAway in the last three years (between 2020 and 2023) that caused the startup, once a rising star, to stumble and face a daunting uphill battle? Let’s delve into the intriguing tale of NestAway’s journey, where unexpected twists and formidable challenges emerged, ultimately leading to its tumultuous decline.
Fall of Nestaway 2020-2023
NestAway encountered a series of hurdles between 2020 and 2023 that led to a substantial decline in value that made the acquisition inevitable. Here are some potential factors that contributed to NestAway’s struggles during this period:
Covid-19 Pandemic
The Covid-19 pandemic significantly disrupted the real estate market and posed unique challenges to NestAway as a rental startup. The pandemic and associated lockdown measures led to a decrease in demand for rental accommodations. With travel restrictions and remote work becoming the norm, many people put their relocation plans on hold or sought more affordable housing options, impacting the demand for NestAway’s rental properties.
As per a Mint report from July 2020, Nestaway faced challenges returning security deposits to tenants even after vacating their premises. Some tenants resorted to legal recourse, alleging fraud and extortion by the Bengaluru-based startup for failing to refund their security deposits. Others turned to social media platforms to voice their concerns.
In response, a spokesperson from Nestaway acknowledged a significant increase in move-out cases over the 3-4 months after the lockdown was imposed in India. They had to deal with thousands of cases accusing the company of fraud and cheating. To avoid the PR disaster, the company claimed to have resolved approximately 3,000 cases within a very short span of time where security deposits were pending. The company attributed this situation to multiple instances of property damage discovered during third-party inspections, for which they charged tenants accordingly. The spokesperson also mentioned a few cases where tenants claimed to have moved out but were later found still occupying the property.
Declining Revenue and Profits
As the Covid-19 pandemic unfolded, NestAway encountered significant challenges, leading to a decline in revenue, increased losses and decreasing scale. The startup reported a notable 16.7% YoY decline in its operating revenue in FY21 – ending March 31, 2021 – to ₹90.7 crores. The situation worsened in FY22, as the operating revenue plummeted even further to ₹57.87 crores, with a 36.2% YoY decline.
Despite NestAway’s efforts to control expenses by cutting corners, with a 5% reduction to ₹178.4 crores in FY22 compared to ₹187.7 crores in FY21, the losses sharply increased. The company reported a substantial 44.3% YoY increase in its annual loss, soaring to ₹94.97 crores during FY22, compared to ₹65.8 crores in FY21. As NestAway experienced a decrease in its scale of operations, it faced challenges in generating sufficient revenue to offset its expenses, leading to the widening gap between revenue and losses.
The home rental platform, which once boasted a portfolio of 50,000 properties, experienced a significant reduction in its offerings. Currently, NestAway features only 18,000 properties on its platform, showcasing the adverse effects of the pandemic on its inventory.
The Departure of C executives
NestAway experienced significant changes in its top-level management, with key executives departing the startup. The first notable departure occurred in June 2019 when Co-founder and CXO Deepak Dhar decided to leave NestAway to start another venture, “Repute”. Following Dhar’s exit, Smruti Parida, the Co-founder and Chief Technology Officer (CTO), departed from the company in October 2019.
The exit of Deepak Dhar and Smruti Parida from NestAway likely resulted in a loss of their core expertise, strategic vision, and leadership, which may have affected the company’s ability to navigate challenges and make crucial decisions.
In a nutshell
In India, many startups have adopted a “grow at any cost” strategy, prioritizing rapid expansion and market dominance. This approach entails raising substantial funds from investors to capture a significant market share within a short period and eliminate competition through acquisitions or outpacing them completely. As a result, these startups have witnessed an increase in their valuation, customer base, revenue, and overall expenses, while also increasing their losses over time.
It is surprising to note that among the 23 Indian startups that achieved unicorn status in 2022 (reaching a valuation of $1 billion or more), only four of them have reported profitability, as reported by Tracxn. This indicates that the majority of these highly valued startups are still incurring losses despite their rapid growth and market dominance.
In the unpredictable realm of startups, those that stumble in their pursuit of profitability and struggle to raise funds often find themselves at a crossroads. Startups who fail to generate profits or secure sufficient funds, primarily because of challenges beyond their control, such as the Covid-19 pandemic or economic downturns like recessions and inflation, typically either cease their operations entirely or pivot their business models or get acquired by larger corporations.
One prime example of such a transformative journey is NestAway, a startup that weathered the storm and emerged as a survivor. NestAway acquisition story serves as a testament to the indomitable spirit of entrepreneurs who dare to dream big. Through strategic acquisitions and a steadfast commitment to their vision, they transcended the limitations of their past struggles, embracing the opportunity to join forces with a larger corporate entity.
On the flip side, the rapidly increasing valuation of Indian startups has failed to sustain, prompting an urgent need to reassess valuation metrics. It begs the question: Will the fear of missing out (FOMO) among investors persistently inflate startup valuations, only to witness a subsequent collapse in the following years? Delving into this matter further will be the focus of one of our upcoming articles. Until then, we appreciate your continued support by sharing this article and staying tuned for more insightful content.
