In one of the most shocking developments of 2017 for the Indian startup industry, Stayzilla, which claimed to be the largest platform (website and app) for verified homestays and alternate stays in India, has decided to shut down its shop abruptly.

While Stayzilla's decision to shutdown suddenly might seem abrupt, but it isn't totally abrupt when seriously pondered upon. A recently published report by Xeler8 revealed that in India nearly one in two startups ends up saying bye-bye sooner than later.

Founded in the year 2010, by Yogendra Vasupal with his wife Rupal Yogendra and his friend Sachit Singhi, Stayzilla was born out of their passion for traveling. The website, which once boosted of having 55,000 stay options in close to 1,000 towns across the country, now shows "sold out” properties tag for any date in March and beyond. While you can very much make bookings for the month of February, but beyond that the website is just blurting out "sold out” with n number of criteria applied.

Since nowadays social media is a startup's communication mode with its customers, we decided to vet Stayzilla's Facebook and Twitter accounts to find out if there's something wrong with the website; what we discovered only added to our suspicion. While Stayzilla’s Facebook page, which normally had daily postings, doesn't show any new posts from February 16 onwards, its Twitter account, on the other hand has now been made private with the last tweet being sent out on February 14.

Stayzilla CEO and co-founder Yogendra Vasupal decided to put all the rumours going around in the industry to rest by writing a blogpost. He said, "I would like to announce today that we would be bringing to a halt the operations of Stayzilla in its current form, and looking to reboot it with a different business model. This has been one of the toughest decisions that I have taken so far but it is the right thing to do."

So, what went wrong?

It is not that Stayzilla is the only homestay and alternate stays startup that wasn't having a good time in the longest time, the budget accommodation sector on the whole hasn't been performing well for quite sometime now, for example, Oyo, which is the highest funded of them, had financial losses running to the tune of US$52.5 million while it made a revenue of just US$2 million in financial year 2015-16. While in comparison to Oyo, Inasra Technologies, the parent company of Stayzilla, took a hit of just US$14 million in the same period with a revenue of US$2 million.

It is important to note that while Oyo with US$188 million in funding, has more cash in the bank to burn through; Stayzilla's funding on the other hand, comes out at less than a fifth of Oyo’s.

Starting its journey in 2010, Stayzilla had initially been successful in landing a whopping US$500,000 in funding from the Indian Angel Network. This was followed by a series A round of an undisclosed amount in the year 2013. In 2015, the startup raised a whopping amount of US$20 million and US$13 million in series B and C rounds from Matrix Partners and Nexus Ventures.

The startup had been looking for fresh funding for quite some months, but the overall funding squeeze prevalent in the startup industry from last year is continuing its run this year as well. With the fundings drying up, a number of startups are being forced to shutdown. Last year, we listed 20 Indian Startups That Died Young in 2016. And with Stayzilla's surprise shutdown, I think we have found ourselves the first big startup for the 2017 edition of the list.

The entry of cash-rich and popular global unicorn Airbnb in the Indian subcontinent only made matters worse for the homegrown Stayzilla. The startup, which became profitable last year, took a large piece of the pie in the budget accommodation market, leaving very less for others. Though Stayzilla had held its position in the alternative accommodation space, but without more funding, it wasn't just feasible for the startup to sustain such a large network spread across the country.

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