Mass transit turned delivery startup, Airlift, has announced shutting down its operations in Pakistan since 13th July 2022. Airlift was a perfect platform and a few months ago they generated record high revenue but now they are closed. When it secured a Series B of US$85 million last year, Airlift looked to be on top of the world, an aspiration in a startup ecosystem that had just begun to thrive. In three years’ time, it had raised a total funding of $110m. So where exactly did they go wrong? As with all setbacks, there are some hard lessons to be learned here.
In 2018, Usman Gul and Aatif Awan launched a mass transit system to provide an alternative to dilapidated public transportation. Airlift’s model was simple – they would hire privately owned buses on rent and run them through selected routes all over the cities they were operating in. The users would book their seat on these buses through the app, arrive on time at designated bus stops, and then be taken to the bus stop closest to their destination. Then in 2019, they faced their first competition when Egyptian company SWVL entered Pakistan. During pandemic, they shut their operations completely after which they pivoted to grocery delivery.
Retail grocery business is a $54 billion market in Pakistan as there are some 900,000 grocery stores. Airlift’s gross revenue in 2021 was $33 million plus but its net margin was less than $800,000 which means just below 2.5%. A corner grocery store makes at least ten times of this margin. So, basically Airlift was selling grocery of over Rs. 6 billion per annum at a loss! They were following a global fad oblivious of the fact that a handful of apps are not going to change the way people buy grocery. Secondly, Venture Capital (VC) money is not a substitute for a strong business model. Startups need to be run by founders, not VCs. Any startup in which founders are diluted to 10% of their equity after just two rounds of funding is bound to fail.
Reports have started making the rounds that a group of investors is considering lawsuits against and a forensic audit of Airlift. While founders and management are the day-to-day of any startup, investors have a pretty significant role to play as well. They often sit on the board of these startups and act as a failsafe. Their oversight is supposed to keep the ambitions of the startup in check. In Airlift’s case, investors seem to have shirked this responsibility. Doubts about Airlift’s numbers have been rife since their pivot towards quick e-commerce in 2020. From the very beginning, they were presenting higher average order value numbers than possible. Insider sources confirmed that Airlift was inflating numbers. They claimed to have 10,000 orders a day at a time when they were not getting more than 5,000-6,000 orders a day. On top of this, they added high-price items such as mobile phones to try and inflate their average order numbers — which is what they were presenting to their investors. But investors kept going because, at some point when a startup is burning cash ($5m a month in 2022) and not giving up on an idea, investors sometimes respond not with questions and criticisms over the business fundamentals but by buying into the idea and trying to keep things afloat. If an investor has their money tied up in a startup, rather than complain and risk prospective investors finding out, they will pretend everything is fine to project confidence so that others will pump money into the startup as well and keep it afloat.
Investors should own up to their careless attitude instead of shaking founder confidence by covering their tracks with an audit they should have asked for months ago.