Sharing economies have attained impressive levels of growth in the last few years, with the sector generating €28 billion in gross annual revenue in 2018 in Europe alone. Spain is at the vanguard of the sharing economy in Europe, with 6% of its population employed by companies adopting this business model for their products and services, above the European average.
Despite often being in the crosshairs of ever-increasing government regulations, collaborative economy startups have grown consistently. Airbnb, Uber and BlaBlacar are just a few examples of how successful and profitable peer-to-peer (P2P) services platforms can be. The greater the participation among the platforms’ users, the faster sharing economies grow, but a large user base does not automatically translate into a profitable business.
Catalan startup HeyGo is an example of how difficult it can be to successfully scale sharing economy models. The location-based, collaborative economy mobile app listed classified services offered by individuals within cities and neighborhoods. The platform covered over 70,000 different services, ranging from tuition, transportation, health services, caregiving and sports, among many others.
In 2017, the crowdfunding platform Startupexplore lauded HeyGo's "potential to become the main peer-to-peer platform of general classified services in the world," offering more services "than any other app in Europe."
Founded in Barcelona in October 2015, HeyGo had as its core team CEO Nicolas Espinosa, CPO Aria Prat and CTO Claudio Umaña leading senior engineers and university professors with drive, innovation and the capacity for rapid development. The company attained impressive growth during its first two years of operations until March 2018 when it had to shut down its website and app.
The company was accelerated by Spanish seed investment specialist Conector and backed by consecutive rounds of investments from a mix of local and international investors. In March 2016, HeyGo announced a new funding round of about €3 million led by JME Ventures, with the participation of Grupo Godó, Media Digital Ventures, Reus Capital and Idodi Ventures.
Seeking overseas expansion
A year after its commercial launch, HeyGo had attained rapid growth, with 96,000 monthly active users and 6,000 services provided every week. At the end of 2016, the company was planning to expand into the UK, Italy, France and Germany.
“Even if we are pretty new in the market, our investors and mentors strongly believe we have the opportunity to expand our business model in overseas markets, given the scalability and automation of our technology” CEO Espinosa stated at the time.
During its first two years of operations, HeyGo invested heavily in talent acquisition, building a team of full-time developers and AI experts. The company developed the Trust Rank algorithm that enables process automation by analyzing over 30 variables to rank search results within its platform. It also created another native technology capable of detecting spam and suspicious users attempting to bypass the company's rules of use.
At the end of 2016, the company announced its intention to monetize its model by offering users the option of paying for featured ads at weekly rates ranging from €4.99 to €9.99. The featured ads would be more visible and prominent compared to the regular posts by other users.
"We had initially planned to monetize from the beginning of 2017, but since we achieved great results over the past few months, we decided to move ahead of the schedule so that we can continue to grow at the same pace,” Espinosa said at the time.
Unsuccessful media blitz
With media for equity funding from Media Digital Ventures, Spain's first such fund, HeyGo launched radio and TV campaigns throughout May and June 2017. At a budget of €400,000, the campaigns had nationwide coverage and aimed to raise brand visibility, awareness and app downloads.
A second wave of media coverage was launched throughout September and October at an additional cost of €500,000. Despite the heavy media push and numerous capital injections, with 43.73% of capital committed, HeyGo continued to burn out cash quickly.
Consequently, in July 2017, the startup launched a crowdfunding round on Startupexplore with a minimum investment ticket of €1,000. The round closed with a total of €294,963 from 142 investors, of which €50,000 was directly contributed by JME Venture Capital.
The new capital injection aimed to finally kickstart the company’s international expansion. Two pilots costing around €10,000 each were conducted in Munich and London to test market traction and growth potential. Armed with new funding, a media for equity plan and monetization through featured ads, HeyGo believed it would grow significantly and was expecting to close the year with €270,000 in revenue.
In March 2018, the startup suddenly shut down its website, scrapped its app across Apple and Google stores, laid off all employees and filed a petition for a pre-bankruptcy process. The petition is a procedure that, in most cases, ends in definitive insolvency. In the same month, mobile app development company Mobile Software Factory, a HeyGo unit, also declared bankruptcy.
With scant chance of survival, the company declared bankruptcy in May, announcing capital losses of €4 million since its launch in 2015. Just before the latest funding round on StartupExplore, HeyGo had a pre-money valuation of about €5.9 million.
HeyGo's demise marks the disappearance of another rapidly expanding company burning out its cash through hiring and ambitious expansion without first having a clear monetization strategy in place. Earlier the same year, another highly promising Spanish startup, Wazypark, suffered a similar fate.
