Zepto's Near-Death Experience: Lessons from the - Funding Crisis

In the fast-paced world of startups, success can often feel like a rollercoaster ride. For Aadit Palicha, the CEO of Zepto, a quick-commerce startup, the ride nearly ended in a disastrous crash. During the intense funding drought of 2022-2023, Zepto came dangerously close to failure. In a revealing interview with Garry Tan, CEO of Y Combinator, Palicha opened up about the pivotal moments that almost brought the company down.

Palicha discussed two major threats that nearly took down his company: hiring mistakes and the sudden collapse of Silicon Valley Bank (SVB) in March 2023. These challenges forced him to reevaluate how Zepto operated and, ultimately, reshaped the company’s future trajectory. Palicha shared how these critical moments pushed him to rethink his hiring strategy, focusing more on “execution intelligence” and high-quality talent to ensure Zepto’s survival and growth.

Zepto’s Rollercoaster Ride: A Close Call with Extinction

Aadit Palicha, CEO of Zepto, opened up about the dark chapter of his company’s journey, during which the startup nearly collapsed due to a series of setbacks. As he shared in his conversation with Garry Tan of Y Combinator, one of the most significant contributors to Zepto’s near-death experience was flawed hiring. According to Palicha, the hiring mistakes across critical departments like finance, operations, marketing, and category management severely impacted the early years of the company.

Palicha specifically pointed out that the wrong hires created operational inefficiencies that made it difficult to meet growth expectations. These hiring errors were especially damaging during the period when the company was struggling to secure funds amidst the tech sector’s 2022–2023 funding drought. But perhaps the most terrifying event for Zepto was the collapse of Silicon Valley Bank (SVB) in March 2023.

SVB was a lifeline for many startups, and its sudden fall created chaos in the tech ecosystem. When the bank collapsed, it froze the operational funds of countless companies, including Zepto. The company’s future seemed uncertain as Palicha recalled the existential crisis when its funds were locked in the bank. According to reports, over 40 Y Combinator-backed Indian startups had substantial amounts in SVB, with some holding upwards of $1 million. The collective panic in the ecosystem was palpable.

Despite the looming crisis, Zepto managed to survive and even grow. Palicha credited Y Combinator for its critical role in helping the company navigate through this financial turmoil. The support from Y Combinator provided much-needed guidance, and the startup made a dramatic recovery. Zepto’s annualized gross order value now stands at $4 billion, reflecting a 300% increase compared to the previous year. Additionally, Zepto’s FY24 operating revenue surged by 120%, reaching Rs 4,454 crore.

Palicha reflected that the crisis reshaped Zepto’s approach to hiring, focusing more on individuals with a high level of execution intelligence—those who could perform under pressure and help navigate complex challenges. For Zepto, the key to success in this new phase would lie in building a team capable of delivering excellence in execution.

What Undercode Says:

The story of Zepto’s near-death experience is a crucial case study in the world of startups, especially in how external factors, like the collapse of SVB, can profoundly affect a company’s future. However, the true lesson here lies in the company’s internal operations, particularly in how hiring and talent management were directly linked to its survival.

Palicha’s admission about the critical mistakes in recruitment serves as a stark reminder for other startups. While product-market fit and funding are often seen as the top priorities for a young company, the strength of its team can be equally, if not more, important. Hiring the wrong people in key roles can create bottlenecks that undermine a company’s growth trajectory, leading to operational inefficiencies and missed opportunities. For Zepto, these early-stage hiring mistakes were costly, but they were not insurmountable.

The collapse of SVB in 2023 was another event that highlighted how vulnerable startups are to financial disruptions. While many startups were caught off guard by the sudden liquidity crunch, the fact that Zepto was able to survive this crisis speaks volumes about the company’s agility and leadership. By working with partners like Y Combinator, Zepto was able to weather the storm and come out stronger.

The shift in Zepto’s hiring strategy post-crisis is particularly noteworthy. By prioritizing “execution intelligence,” Palicha emphasizes the importance of having a team capable of navigating high-stakes situations. In a world where the pressure on startups is immense, execution intelligence ensures that teams can adapt quickly, make critical decisions, and drive results when everything is on the line.

Zepto’s growth after the crisis is a testament to the power of learning from failure. It shows that while startups might stumble, they can rise again by addressing internal weaknesses, especially in terms of team-building and execution. This also highlights a larger trend in the startup ecosystem: building teams with the right skills and mindset is just as crucial as securing funding or product development.

For other startups looking to avoid

Fact Checker Results:

The collapse of Silicon Valley Bank in 2023 did indeed cause liquidity issues for many startups, including Zepto, which confirmed the impact of frozen funds.

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The hiring mistakes cited by Palicha reflect a common struggle faced by many startups, with talent management being a key challenge in early-stage growth.