Media reports are screaming that another startup has “vanished with ₹280 crores”. And in today’s Finshots, we thought we’d explain what’s going on.
If you haven’t got 5 minutes to read the story today, here’s a 30-second version for you.
- A young maverick drops out of IIT and builds a company to disrupt home rentals. But after finding quick success, he gets into an ugly tussle with his investors and is ousted from the startup he helped build.
- Fans think he is going to do a Steve Jobs and make a comeback. But he steps away. Instead, he takes up a regular job in a real estate company.
- But the entrepreneur in him refuses to sit idly and he launches another real estate startup. He raises millions, burns through it all, and is now on the brink of shutting it all down.
Well if you’ve got 5 minutes (or maybe 7?), let’s break this down a bit, shall we?
It all began in 2012. A young man, Rahul Yadav, was trying to find a house that he could rent in Mumbai. But online listings back then were sparse and the little information it provided was worthless. And that meant relying on the brokers and trudging through the streets looking for houses. Also, the photos that he would’ve seen online wouldn’t be anywhere close to what they looked like in reality.
It was a disappointing experience.
So guess what Yadav did?
Well, he dropped out of IIT, brought together 11 other co-founders and decided to build a platform that would solve his own problem — Housing.com was born. They would disrupt the rental market with technology. They would list properties, take photos themselves and upload them, use analytics to create heat maps of the city based on prices, show amenities near the property, everything. And then they’d send leads to brokers, and collect hefty commissions.
Pretty soon, investors swooned over Yadav and his team. Biggies like Softbank and Sequoia threw millions of dollars at the company. And Rahul Yadav became the poster boy of the fledgling Indian startup ecosystem.
Until he wasn’t…
In 2015, Yadav got into an email spat with one of his investors — Sequoia. With the subject line “Last straw”, Yadav even warned, “This mark[s] the beginning of the end of Sequoia Cap in India.”
Someone leaked this exchange on Quora and things got ugly quickly.
But what led to this, you ask?
Apparently, Sequoia had poached an analyst from Housing.com and this ticked Yadav off. And soon after, he went after everyone else he could lay his hands on. He berated the media for publishing reports about him. He fed them contradictory information. He pilloried founders of other startups too.
Eventually, investors probably felt that a CEO with a confrontational attitude was a liability. And they parted ways. They got a new CEO and eventually merged the company with another startup PropTiger.
Yadav tried again.
He launched another startup called Intelligent Interfaces. The idea was to provide data aggregation and visualisation tools to government agencies. However, it wasn’t entirely obvious what the company actually ended up doing. But despite this lack of clarity, he raised money from Sachin Bansal of Flipkart, Vijay Shekhar Sharma of Paytm, and a clutch of others.
However, within months, Yadav announced that things weren’t working out. The startup folded. Investors licked their wounds. And Yadav was back on the market.
But this time, he went the 9–5 route. He took up a role at Anarock Technologies, a real estate company. He was going to keep his head down and live a normal salaried life. And it all seemed quiet for a while. Whispers about how Rahul Yadav was the next Steve Jobs faded away. There were other unicorns in India to focus on by then.
But once an entrepreneur, always an entrepreneur, right?
The startup itch wasn’t over yet. And in late 2020, Rahul Yadav decided to give his real estate dream another shot. This time he launched a company called 4B Networks. And the idea behind this was pretty simple really — to connect Builders with Buyers through Brokers and help finance deals through Banks. The 4Bs!
Initially, the builder would pay a fee to 4B Networks (or Broker Network as the brand was known). And the company would then pass along commissions to the brokers on the platform for their efforts in sourcing clients.
But wait…that only deals with 3Bs, right?
True. So to get the fourth B, they went after another company that was already doing it — Amorqa, which streamlined home loan disbursements and earned commissions from banks.
But Amorqa was struggling. It was running out of cash. And that’s when Rahul Yadav’s 4B Network came to the rescue. They bought Amorqa at a throwaway price of just ₹2 lakhs.
And Yadav got his fourth B — Banks!
By then, the idea, the tech, and maybe the Rahul Yadav brand attracted a big fish — InfoEdge. You know, the folks who’ve backed Zomato and plenty of others too. InfoEdge soon pumped in around ₹280 crores and owned 65% of the company. Everyone believed this was Yadav’s comeback.
But then…the cash burn began.
Employee count quickly jumped from a mere 250 in July 2021 to over 2,000 by July 2022. Staff were being hired at fat cat salaries.
Also, it seems like 4B Network didn’t care much about how they made revenues. They just wanted to grow.
Remember those commissions we said they’d pay out to brokers?
Well, as per The Morning Context, each time a broker got a visitor to a property, 4B Network would pay out ₹300 as an incentive. The brokers caught on to the fact that no one cared who the visitor was. So they brought in ‘fake prospects’ to look around — their friends, families, extended network, anyone!
Then there were the commissions from the home loan business. Now for every loan that 4B Networks facilitated, they’d get a commission. But 4B Networks would need to share it with the broker who brought the customer too. Now here’s the thing. Typically, a broker would get 40% of the commission. But 4B Networks was insanely generous. They began to dole out 75–100% of the commissions.
Business over profits!
And this sort of thinking wasn’t new.
You see, in 2017, in an interview with Quartz, he specifically said that one of the problems he faced at Housing.com was that investors wanted revenue. But, he wanted scale. Both of these things apparently don’t go hand in hand in the early years of a startup.
Anyway, you can guess what happened next at 4B Networks, right?
The company quickly ran out of cash. And by November 2022, employees stopped getting paid. It was mayhem.
But wait…it wasn’t just a problem with cash burn. You could say that’s a feature of the startup world. The real problem for Rahul Yadav now is the other allegations. The ones about corporate governance issues.
For instance, here’s a particularly egregious one reported by Inc42.
It seems that funds raised for 4B Network were funnelled into RY Advisory–a company controlled by none other than Rahul Yadav. And then, the money was moved into a business called Kult App. And one of the directors in this new firm happens to be Yadav’s wife.
And then there’s this bit from Moneycontrol.
Apparently, Yadav tried to get a UAE-based investor to come in and buy out Info Edge for a mere ₹2 crores. And when Info Edge requested an in-person meeting, this investor disappeared.
So yeah, you can now see why Info Edge has written off its investment. It marked it down to zero a couple of months ago. And now finally, it has even roped in Deloitte and ordered a forensic audit. It wants to find out if the company’s management conducted their business by the book.
Anyway, whatever the outcome of the audit, 4B Networks seems to be on the precipice of collapse. It doesn’t have much cash. It doesn’t seem to have a solid business plan. And it doesn’t seem like the “third time’s the charm” for Rahul Yadav.
Could this be the end of the road for him as an entrepreneur? Time will tell.
Until then…it’s quite a story, isn’t it?