The underbelly of the startup world, as revealed by a failed ecommerce pioneer

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Live by the sword, die by the sword. We’re seeing a manifestation of this old proverb in the new world of ecommerce.

K Vaitheeswaran founded one of India’s first broad-based ecommerce sites way back in 1999. It was called Fabmart, and later rebranded to Indiaplaza. He also founded Fabmall a couple of years later for online-to-offline grocery delivery.

Fabmall was acquired by the Aditya Birla Group and rebranded into the More chain of supermarkets we now see all over India. Indiaplaza fought on, educating buyers and sellers in ecommerce, working out logistics, experimenting with cash-on-delivery and other payments. It won backing from the Reliance Group of Mukesh Ambani, India’s richest man.

As thousands of young Indians plunge into entrepreneurship, it is essential that the startup ecosystem throws up role models who create sustainable businesses without sacrificing personal integrity.

And yet, its early mover advantage counted for little in the end. In 2013, Indiaplaza downed its shutters, 14 years after it had initiated ecommerce in India.

In a memoir released this month, titled Failing to Succeed, Vaitheeswaran covers his journey: that of a marketing manager who quit IT giant Wipro to start an ecommerce company at the turn of the millennium and face all the challenges of being a pioneer. The book has lessons in starting up for all, and not just in ecommerce. But its most compelling chapter is the last: “End Game.”

There, he confronts his demons, and the question that haunts him. Why did Indiaplaza fail just when ecommerce started to take off in India with a smartphone boom? The answer is a mix of black swan events, the murky side of venture capital, and his own naivete.

K Vaitheeswaran, author of Failing to Succeed.

The first black swan event was the financial crisis of 2008 which spooked Indiaplaza’s backers. Funds dried up just when Flipkart, “flush with early funding, paid vendors in advance… [and] started shipping large volumes by selling below cost and with free shipping,” writes Vaitheeswaran.

It left him with a Hobson’s choice: accept venture capital with terms that effectively gave investors control over the company, or shut it down. He chose the former, despite his misgivings.

One of his misgivings was that Indo-US Venture Partners (which later became Kalaari Capital), one of the few VCs active in this space back then, had already invested in Snapdeal before backing Indiaplaza. “This was a potential case of conflict but since it was a fait accompli, I accepted the uncomfortable situation… An investor with stakes in several ecommerce startups has the option of deciding to back one instead of the others and in a sense decide the winner before the race is run.”

Vaitheeswaran goes on to detail his struggles with a dysfunctional board, inexplicable hurdles in raising a follow-up round, and finally calling it quits in December, 2013.