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How health-tech startup

PhableCare scammed
everyone
Six years ago, the company had set out
to simplify chronic disease management.
It ended up with fudged sales numbers,
fake users and disgruntled employees.

Samiksha Goel Bengaluru

03 July, 2023

Unlocked story

In April, after months of exasperation,

around 20 former employees of health-
tech startup PhableCare filed a plea before
the deputy labour commissioner,
Bengaluru, about unpaid salaries, other
dues and exit documents.

In response, the company wrote a letter

saying it had decided to suspend its
business with effect from 31 December
2022, citing “unforeseen situations,
pandemic, depletion in the revenue and
cash flow in the company and coupled with
recession in fundraise for startups since
March 2022 in India”. The Morning
Context has seen copies of both the petition
and PhableCare’s letter.

The company’s response came as a shock to

the petitioners. According to two of them,
several employees were on the payroll,
going to the office and carrying on with
their duties in the months following
December, when the company claims it
suspended operations. PhableCare was also
hiring during that period, say the two
former employees, on condition of
anonymity.

Curiously enough, in January, the

company’s LinkedIn page even featured a
post about a new office in Bengaluru. The
same month, it also sent out a tweet
looking for interns.

Things have unravelled fast for the

Bengaluru-based startup since, bringing
the curtain down on its fate. Its app is no
longer functional, the founders’ email
addresses are inactive and many former
employees have been complaining about
unpaid salaries. Going by an Inc42 report, it
began laying off employees last year itself.
From over 800 in August last year, the size
of its workforce fell to 200 in February,
says the report.

A little about the company. Incorporated in

2017, PhableCare offered to track the health
of patients suffering from chronic diseases
through apps like Fitbit and Google Fit. It
also arranged online consultations with
doctors, facilitated lab tests and delivered
medicines as well as medical devices. In the
2021-22 fiscal, it clocked Rs 21 crore in
revenue, as against Rs 2 crore the previous
year. Its losses, however, rose from Rs 30
crore to Rs 154 crore.

In April last year, the company raised

nearly $25 million (about Rs 187 crore at
the time) in a Series B funding round,
which was led by Kalaari Capital and
included Aflac Ventures, Digital Horizon
and Stride Ventures. “Our focus over the
next two years would be to take the
technology to over 30 million Indian
households and over 1 lakh super specialist
doctors in India and capture 25% of the
market,” co-founder Sumit Sinha had said
at the time.

Fast-forward to today. In the letter to the

deputy labour commissioner, PhableCare
said it was looking for third-party
investors to buy its business so that the
company could clear the outstanding dues
of its employees.

So, how did a six-year-old company that

raised about $25 million just last year come
apart in a matter of months?

The Inc42 report mentioned sources who

put the company’s troubles (delayed
salaries and layoffs) down to a high cash
burn and its inability to raise funds amid a
funding crunch. But there is more to this
than meets the eye.

Part of the problem seems to lie in the way

the company was being run. Our
conversations with seven former
employees (including the two cited above)
paint a grim picture, one where the day-to-
day operations seemed to be riddled with
cracks. All the seven former employees
requested anonymity. Six of them tell of
fraudulent practices, such as inflating sales
figures and fudging user numbers. Five of
them say they witnessed some of these
goings-on first-hand but cannot access
evidence since they are no longer in the
system.

“It was very clear that they were running

the organization to show that they have
grown so much and they are going to do the
next big thing,” says the first of the two
former employees cited in the beginning.

Questions sent to both the founders on

Saturday didn’t elicit a response.

By all accounts, at the heart of the

PhableCare crisis lies an ambition to grow
too fast and at all costs. A theme that has
now become all too prevalent, with startups
like GoMechanic, BharatPe and Byju’s, to
name a few. Let’s dive in.

A numbers game
PhableCare started out mainly as a
platform connecting patients with doctors
and helping the former manage chronic
diseases. “This process is hard to monetize,
so it got into e-commerce,” says a second
former employee cited at the top. Which
basically means that the company also
delivered medicines and some medical
devices.

There was obvious pressure from investors

to grow revenue, says the second former
employee. “In the process to increase the
top line, a lot of shoddy practices
happened,” says this person.

A third and a fourth former employee give

an account of one such practice. To meet
sales targets, they say, the company had an
arrangement where some of the drug
retailers would transfer money to its
account and it would record sales
transactions only on paper, with no actual
goods changing hands. The numbers would
then be shown as revenue, and the
company would later send the money back
to the retailers.

“They used to do these transactions with

four-five vendors where they would get Rs
1-2 crore from them and they would
transfer the money back,” says the fourth
former employee.

There was another grey area. Although

PhableCare was primarily a B2C business,
selling medicines and medical devices to
users on its platform, most of its revenue
was coming from B2B customers
(retailers), says the second former
employee. “On the one side, you are buying
from a chemist and, on the other, you are
selling to customers. If you are buying it at
a 13% commission and you are selling it at
a 40% discount, the merchant is smart
enough to come and buy from the
platform,” says this person.

“The company would manipulate the books

to show [B2B] bulk orders as [B2C]
individual orders. This was common
knowledge,” says the third former
employee.

Apart from that, this person says the

company would misreport numbers by
engaging in “shady” deals. “For instance, a
third-party company would bring the leads
for people who wanted lab tests done and
would fulfill the service, but the numbers
would be shown on PhableCare’s books,”
says this person.

The startup also appeared keen to gloss

over facts in order to give the impression
that it was growing organically. “We used
to acquire users through performance
marketing [digital ads]. The founder would
come and ask if there was a way to show
that the users who came from paid
channels were actually acquired through
doctors,” says the third former employee.

The first former employee also insists that

the company was indeed misreporting user
numbers. “They were running a few bots
that were creating fake users in their
database,” says this person. “During some
of the marketing activities, they used to say
they have 10 million-plus users. At the back
end, there are entries of 10 million users,
but a lot of these users don’t exist.”

The management, however, kept “saying

this could be because of users entering
wrong data. There was a software bot
running that was not developed by an
internal team member. Which meant that
they used some external service provider to
do this,” says the person quoted right
above.

Besides, the numbers being presented to

investors were not the same as what the
employees were seeing, according to the
second and a fifth former employee. “At
investor meetings, there were multiple
times when we were told not to discuss a
few numbers,” says the fifth former
employee. “If there were follow-up
questions on this, we were told not to get
into the details.” The number of active
doctors on the platform, for instance, was
150, while the figure being projected was
10,000, according to the second former
employee.

Misleading numbers apart, did the

company have a concrete plan?

The business itself was not designed to

perform well, says the first former
employee. “The company was giving 40%
discounts on medicines and offering
cashbacks for every activity on the app. For
example, every month, we were adding Rs
20 crore to people’s wallets just for
referring the app to their friends,” says this
person.

Even as all of this was playing out, the

funding was getting harder to come by. At
the receiving end of the uncertainty were
the company’s employees.

Left in the lurch

Things were looking bleak on the investor
front. According to the first former
employee, Manipal Hospitals, a key
investor, had backed out. We could not
independently verify this information.

The chaos started in July last year when the

company laid off around 150 people, says a
sixth former employee. In August, pay cuts
were also enforced for a sizeable part of the
leadership team, notes the fifth former
employee.

Also, salaries were delayed from August

onwards, says the first former employee.
The reason given for the delay was that the
company’s accounts were frozen because of
an audit being carried out by potential
investors, according to the second and the
fifth former employees. We could not verify
if this was the case.

“PhableCare kept saying that funding was

coming in, but that never happened,” says
the first former employee. However,
according to the second and the fifth
former employees, the company raised a
bridge round last year involving angel
investors.

The layoffs, pay cuts and delayed salaries

were not the only problems.

In some cases, ostensible deductions from

salaries towards employees’ provident
funds and tax deducted at source did not
reflect in the employees’ accounts. The
Morning Context has perused the third
former employee’s EPF passbook and tax
statements, neither of which showed the
said deductions.

With nowhere to go, some employees are

now seeking legal recourse, like the
petitioners mentioned in the beginning.
But the fight hasn’t been an easy one.
“Some of us started getting anonymous
calls. Some were requested not to take the
legal route and were told that [the
founders] are trying hard to sell the
company. Others were threatened that they
would be blacklisted,” says the first former
employee.

A seventh former employee filed a police

complaint. The complainant says that after
the complaint was filed, the founders made
allegations that this person had taken
bribes. “[The founders] said they are doing
an internal investigation and will send
proof in 15 days, but they never got back,”
says this person.

With the company ceasing operations

without so much as a convincing
explanation, it seems the former employees
have an uphill battle ahead. PhableCare’s
story then is yet another cautionary tale of
startups that prioritize growth above all
else. Even if it means brazenly
manipulating numbers and neglecting
employees.

Lead illustration by Rajat Baran/The

Morning Context.

Startups Layoffs Shutdown

Healthtech PhableCare Phable

Disclaimers: The Morning Context has

raised money from a clutch of
investors, entirely in their personal
capacity. It is quite likely that some of
them may be directly or indirectly
involved in a competing line of
business similar to the companies we
write about. Our full list of investors is
here

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