Why Are Indian Startups Laying Off Their Workforce?
Amidst growing pressure from investors to stick to conventional profit-making, firms should essentially get the hang of operating tenably to eke out an existence during the funding winter
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Indian startups and their employees have realised themselves in a jam ever since the onset of 2022. The companies have been busting a gut to dodge the bullets of the Ukraine-Russia conflict and the intense nationwide inflation. We witnessed the stock market come a cropper, funding take a hit and the struggling firms go on a sacking spree to downsize costs. 13 Indian startups including Vedantu, Trell, Cars24, Meesho and Unacacademy ousted over 9,000 employees. The funding atmosphere has been spooky. From funding worth USD 11.7 Bn in Q1 to USD 3.1 Bn in mid-Q2, investors seem to have chickened out.
In a widely circulated essay from two years ago titled “Coronavirus: The Black Swan of 2020,” the venture capital firm Sequoia Capital warned startups to question every aspect of their business, including their staffing levels and whether they’d have sustained access to capital. Two years down the lane, companies seem to have botched the task of fund allocation. Several cautioned investors including Sequoia Capital, Lightspeed Venture Partners and Craft Ventures have been shepherding their portfolio companies through the stormy waters. In the thick of the funding crisis, startups prefer the more convenient layoffs method over contemporary cost-cutting procedures.
Sequoia warned its portfolio companies of the forthcoming funding winter and instructed them to conserve cash. Ace investor, Y Combinator, issued a similar warning that read,”understand that the poor public market performance of tech companies significantly impacts VC investing”. Gaurav Munjal, Founder of Unacademy, also tipped off his team of the impending funding winter and directed them to centre around profitability for the coming 12-24 months. Most recently, Singapore-based VC firm Beenext advised its portfolio companies to revise their budgets and have an extended runway. The firm rolled out a two-page presentation that guided portfolio companies on surviving through the funding crunch.
“Be creative on reducing costs. For example, try procuring AWS, Google cloud credits to remove cloud burn. Try reducing salaries and compensate heavily in ESOPs (employee stock option programmes). Stop experiments on new ideas and business lines till you raise the next round. High focus on doubling down monetization for the core product. Try leveraging partnerships with other companies to sell rather than doing everything alone,” read the Beenext presentation.
Edtech unicorn, Vedantu, axed over 600 employees in May, citing “restructuring” as the reason for the layoff. Vamsi Krishna, co-founder of Vedantu stated, “currently, the external environment is tough ” in a blog post. The mass dismissal at Vedantu ensued from a collective layoff at opponent firm, Unacademy. The Bengaluru-based startup laid off over 1,000 employees which is over 10 percent of its workforce. Unacademy announced that a two months’ severance package would be provided to the laid off employees. Another unicorn, Cars24, fired 600 staffers which accounts for 6 percent of its total workforce. The Softbank backed firm said the layoffs were ‘usual performance-linked exits’.
Most recently, Gurugram-based B2B startup, Yojak, fired 140 employees. The Info-Edge funded company is looking to wind up operations in India amidst the funding quandary. Facebook staked e-commerce firm, Meesho, also terminated around 150 contracts in April. The Bengaluru-based firm announced severance packages and outplacement services to assist the laid off employees.
The venture capital world is putting through a paradigm shift from edtech and healthtech to gaming and blockchain. Byjus recently announced plans to enhance focus on the international markets as the Indian edtech market is scaling down. Binance Labs closed a USD 500 Mn investment fund. The fresh capital would be invested in Web3.0 and blockchain technologies. Andreessen Horowitz, a VC firm based in California announced two funds worth USD 4.5 Bn and USD 600 Mn respectively to invest in blockchain, Web3.0 and gaming startups. Investments and acquisitions in these three industries have ballooned in 2022. The funding fluctuations have bulldozed the startups to trim expenditure.
Indian startups miscarried capital, flying the coop over the creation of sustainable capital reserves. High cash burn and jerry-built capital allotment also helped drive startups to the wall. Amidst growing pressure from investors to stick to conventional profit-making, firms should essentially get the hang of operating tenably to eke out an existence during the funding winter. Investors have continued to advise against exploring and venturing into new market verticals. Enclosed by the icy funding season which is speculated to last 12-18 months, focusing on unit economics may also be the answer for the struggling startups. The said cost-cutting alternative would be a win-win, helping employers curtail expenses and saving employees from the dreadful layoffs.
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