Kenko Health, a once-promising Mumbai-based insurtech startup, has officially ceased operations due to a severe financial crisis and regulatory setbacks. The closure has left 100 employees in distress, with unpaid salaries stretching back several months.
Promising Beginnings
Founded in 2019 by Aniruddha Sen and Dhiraj Goel, Kenko Health quickly gained attention in the Indian insurtech space with its subscription-based health plans. Backed by prominent investors like Peak XV Partners (formerly Sequoia Capital India), Orios Venture Partners, and Beenext, the company raised over $13.7 million. Kenko’s innovative offerings, including outpatient department (OPD) benefits, medicines, and healthcare products, helped it stand out in a competitive market.
Financial Woes and Regulatory Setbacks
Despite initial success, Kenko’s rapid growth was overshadowed by financial instability and regulatory hurdles. The company’s revenue surged from Rs 5 crore in FY22 to Rs 85 crore in FY23, but net losses tripled to Rs 68 crore in the same period. A critical setback was the company’s failure to secure an insurance license from the Insurance Regulatory and Development Authority of India (IRDAI), which is essential for operating in the sector.
Founders’ Efforts and Unsuccessful Rescue Attempts
In emails sent to employees in July and August, the founders disclosed that the company had run out of funds and was facing legal action from creditors. Aniruddha Sen admitted in one email, “Unfortunately, the company has run out of funds, and we were unable to infuse equity capital in time due to various internal reasons.”
Despite injecting approximately Rs 9 crore of their personal funds between October and December 2023 to cover salaries, the founders could not keep the company afloat. “The company ran out of capital a long time ago and has had no ability to settle employee F&F’s. This is unfortunate but also the stark reality,” they wrote in another email addressing employee concerns.
Regulatory Compliance: A Major Hurdle
Kenko’s downfall underscores the challenges faced by insurtech startups in India, particularly in navigating the regulatory landscape. The IRDAI’s stringent requirements, including the need for domestic capital as the lead investor for obtaining an insurance license, proved to be a significant obstacle for the company.
An industry expert commented, “Kenko’s shutdown highlights the importance of regulatory compliance in the insurtech sector. Startups need to prioritize obtaining necessary licenses early on to avoid similar pitfalls.”
Failed Fundraising and Legal Troubles
Kenko’s financial troubles were further compounded by its failure to raise Rs 220 crore in 2023. Negotiations with potential investors, including the Hero Group, fell through due to concerns over significant equity dilution in the proposed restructuring plan.
Adding to the company’s woes, a large third-party administrator (TPA) that handled claims for Kenko filed an FIR over unpaid dues. A senior official from the TPA stated, “On behalf of Kenko, we issued pre-authorisations to hospitals. Now, Kenko has refused to honour its commitments. So we are obliged to file an FIR against Kenko on behalf of hospitals, who are our clients.”
Impact on Employees
The shutdown has left Kenko’s employees in a difficult position, with many reporting unpaid salaries since March. One employee, who wished to remain anonymous, shared, “Troubles have been brewing since December. We saw it coming and were already on the lookout. Formally, everyone has resigned since the communication in June and has received their relieving letters, but it was hard for a few after the voluntary resignation.”
Another employee recounted the abrupt closure: “I went to the office to collect my things when the building manager told me that the office was shut. There was a notice placed outside the office. I was also told there was a police visit in June.”
Lessons for the Indian Startup Ecosystem
Kenko Health’s collapse serves as a cautionary tale for the Indian startup ecosystem, particularly in the insurtech sector. It highlights the need for startups to balance rapid growth with financial sustainability and regulatory compliance. The incident also raises questions about investor due diligence and the level of support provided to startups facing regulatory challenges.
The Road Ahead for Stakeholders
As the dust settles on Kenko Health’s shutdown, the Indian startup community is left to reflect on the lessons learned. The incident underscores the importance of sustainable business models, robust financial planning, and proactive regulatory compliance in the highly regulated insurance sector.
For the employees and stakeholders affected by the shutdown, the future remains uncertain. As legal proceedings unfold and efforts to recover dues continue, the Kenko Health saga serves as a stark reminder of the volatility in the startup world and the potential consequences of unchecked growth without proper regulatory alignment.
