By returning investors' money on its closure, GoZoomo sets example for Indian start-ups

Unable to come up with a system to standardize prices of pre-owned cars, GoZoomo had to shut shop.
 By returning investors' money on its closure, GoZoomo sets example for Indian start-ups
By returning investors' money on its closure, GoZoomo sets example for Indian start-ups
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GoZoomo, a marketplace for second-hand cars has decided to shut shop owing to an unsustainable business model, reported Malavika Velayanikal for Tech In Asia. However, what makes the company stand out, even in its closure, is that it returned money it had raised to the investors.

Started by three IIT graduates, Arnav Kumar, Himangshu Jyoti Hazarika and Aniket Behera, the start-up had been running for two years and had managed to raise $7 million from venture capitalists. However, even as half the amount remained, GoZoomo decided to close, returning their leftover money.

“The right thing to do is to treat the capital respectfully and deploy it where there is a better chance to create huge value,” Arnav told Tech In Asia. He added that he did not want to “hoard” the capital in an unsustainable business model. Arnav is also the CEO of the company.

What went wrong

GoZoomo targeted the lack of trust in the Indian pre-owned car marketplace, which exists because the buyer can never be sure of what he or she is getting.

To address this, GoZoomo decided to limit its listings to only those vehicles that had been physically inspected by their staff and whose documents had also been verified by them. While it worked initially and their transactions shot up to 100 a month, the problem turned out to be standardizing prices.

The Tech In Asia report explains further: “The inspection team would suggest a fair price to a seller, but they would want to see if it would sell at a higher price. The buyer would see a similar model of car listed on a classifieds site like OLX or Quikr at a much lower price – and not take into account that there might be a hidden problem with the car.”

While GoZoomo was able to come up with a pricing engine for Mumbai and Bengaluru, people did not believe in it due to the lack of a “golden standard”, Arnav said.

Indecisiveness of the customers on deciding a price and the subsequently delayed transactions that ultimately spelled GoZoomo’s doom. However, Arnav said that this is also because India is a much younger market for cars compared to developed countries and so, the behavioural changes needed for GoZoomo's model to work would take more time to happen.   

Although GoZoomo could not survive the Indian market, its act of returning the capital to its investors has impressed the latter. 

According to a MediaNama report, GoZoomo had raised $1 million in December 2014 and an additional $5 million from SAIF partners a year ago, making SAIF their main investor.

Alok Goyal, Managing Director of SAIF, told Tech in Asia that returning the funding had set a "new standard in the Indian start-up ecosystem".

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