When Deepak Chhugani’s first startup was failing, he decided to offer his investors their money … [+]
In the fall of 2018, Deepak Chhugani looked like he had it all. The 26-year-old Ecuadorian immigrant had recently graduated from Y Combinator and quickly raised $1.2 million for his professional networking startup The Lobby. The company aimed to help individuals like himself from atypical backgrounds and non-Ivy League colleges land jobs at the top financial firms. But behind the scenes, the numbers just weren’t adding up.
“We were getting traction at a micro scale with passionate users… And we followed all the advice that said if you have a core group of happy users, then you can just scale that up,” former Merrill Lynch investment banker Chhugani told Forbes. “But the business model was not recurring and I felt like our company was becoming a zombie in the making.”
Chhugani gave himself an ultimatum: if the company didn’t hit $60,000 in monthly revenue by the end of the year, he’d abandon the idea. As the fall dragged on and they still hadn’t even cracked $10,000, it became clear that the company would soon be dead in the water if he didn’t do something. So just a couple months after making headlines for raising his funding, Chhugani decided to let his eight employees go and go back to the drawing board.
As he consulted advisors on what to do next, Chhugani realized he had been in the wrong industry the entire time. Back in Ecuador, his father had a long career in logistics, helping Latin American retailers connect with Asian suppliers. The more natural industry for him to tackle would be logistics — a $213 billion industry in the U.S. alone — easing the transportation of goods in and out of Latin America.
So he started laying the groundwork for Nuvocargo, a freight logistics startup that helps companies transport goods between the U.S., Canada and Mexico. Then he did something that all his advisors told him not to do: he told every investor that he was pivoting the business and offered them their money back.
“If founders decide to pivot their company, it’s uncommon for them to offer the money back to investors and there’s certainly no legal obligation,” said Y Combinator Partner Jared Friedman, who first met Chhugani back in 2017 while he was applying to the accelerator. “I had a lot of respect for him doing something that could have killed his company just because he felt that it was the right thing to do.”
Like Friedman, most investors declined the offer. For the loss caused by the few that did back out, Chhugani was able to convince the remaining investors to replace that lost investment (this got him back up to $1.2 million in funding).
It turns out, those remaining investors were right. Less than a year after officially shutting down his old business, Nuvocargo launched in August 2019. By the next month it had already exceeded the monthly revenue seen at the height of The Lobby and the company says it has continued to grow at a 70% clip, month over month.
“Business in Latin America is very relationship driven and that is where Deepak’s superpower is; he grew up in Ecuador but also knows the U.S. market,” said entrepreneur and angel investor Matt Mireles, who was one of the investors that chose to triple his investment.
Nuvocargo will face competitors. In addition to traditional freight forwarders, companies like Flexport and Transplace have already entered the market and begun digitizing the cross-border transportation of goods. But his investors are banking on the bilingual entrepreneur’s ability to narrowly focus on commerce between North and South America.
“When I was choosing what to work on next, this whole industry just felt close to home,” said Chhugani, noting his father’s business as inspiration. “I’ve always wanted to do something to bridge some of the gaps between the U.S. and Latin America. That’s kind of my passion.”