With the slowdown in funding from global investment companies, startups continue to cut costs by laying off their employees. According to certain reports, nearly 6000 employees lost their jobs in the first five months of 2022. The startup today in every field are firing employees. Meanwhile, recruiters, HRs and industry experts predicted the trend to continue for a few months.
Instances of Startup Layoffs
From healthtech to edtech, startups in various segments are firing employees to survive the economic downturn.
Zomato-backed Blinkit fired 1,600 employees, whereas edtech startups such as Unacademy and Vedantu laid off 1,000 and 600 people, respectively.
Moreover, automobile marketplace Cars24 laid off 600 people. Even the situation in healthtech companies is no different from others. Mfine, a healthtech platform, let go of 600 people. On a global level, startups such as Thrasio, OnDeck, Robinhood and Cameo also have fired employees.
Factors resulting in Startups Layoffs
The rise in inflation rates and the U.S Fed’s decision to hike interest rates affected the liquidity of the startups. Investors are reducing investments in public and private markets instead of deploying their funds in allocating bonds.
Moreover, lockdowns across the world adversely impacted the supply chains. In addition, the Russia-Ukraine war pushed up fuel prices and, consequently, transport costs.
Despite minting a unicorn every week in India, the overall sentiment does not look good in the startup ecosystem.
The trend to lay off employees indicates three key factors. Firstly, prioritising customer acquisition over profitability. This, in turn, leads to unmanageable expansion. Secondly, a subdued investment environment has led to an economic downturn. At last, the fear of a possible recession also contributes to the aggravating situation.
According to industry experts, the trend will affect the traditional job market in the short run. However, it will grant a reprieve from the valuation exuberance in the startup ecosystem. However, there is a silver lining amidst the startup layoffs. Rising attrition rates will eventually cool down. Also, the cost of acquiring new talent will reduce.
According to a report published in May 2022 by industry group IVCA and consulting and auditing firm EY, the startup funding has been reduced, but the deal sizes have become smaller too. Investments by private equity and venture capital firms in Indian startups declined to USD 1.6 billion across 82 deals in April 2022 from USD 3 billion in April 2021 across 41 deals.
What the industry experts have to say
“A sense of pressure due to the war in Europe, money-losing value due to inflationary issues, and investors asking hard questions on outcomes contribute to the present scenario. The aggressive hiring by some firms as part of the talent war were made ahead of plans, and now it is cooling off,” said Aditya Narayan Mishra, chief executive officer of CIEL.
Rachit Jain, the founder of the career and employment platform Youth4Work, said, “What they forgot is that the Indian market is different and Indian customers are different. The current shock was necessary to normalise things and cut down unreasonable exuberance. The flux we are witnessing will continue at least for the next six months. You will see layoffs, you will see the rationalisation of valuation, and I would not be surprised if a couple of unicorns shut down operations or simply get merged with others.”
Vishesh Rajaram, the managing partner of Speciale Invest, said, “Companies that grew at any cost (in an abundant capital market) are now having to see how quickly they can become profitable and less dependent on venture funding. Fixed costs top the list for cost-cutting, and manpower is one segment where many of these companies have spent the most on in the last few years.”
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