Recently, some of the most popular startups in India including Unacademy, Cars24, and Vedanta, have let go of nearly 5,000 full-time and contractual employees this year. Ola has laid off about 2,100 employees from January-March this year, followed by Unacademy (over 600), Cars24 (600), and Vedantu (400). But why are these startups downsizing? Are these largely funded startups trying to save money? Is there any crisis brewing in the startup space? Let’s find out what's the reason behind this mass firing that has been witnessed in Indian startups recently.
The reason behind the downsizing of startups
War in Europe, impending recession fears, and Fed rate interest hikes have led to inflationary pressures with massive correction in stocks globally and in India as well. Given this environment, capital will be scarce for upcoming quarters
Investments by private equity and venture capital firms in Indian startups fell to $1.6 billion across 82 deals in April 2022 from $3 billion in April 2021 across 41 deals, according to a report published this month by industry group IVCA and consulting and auditing firm EY. Not only has startup funding reduced, but deal sizes have also become smaller too.
But the actual reason seems to be the growing concern shown by investors in Indian startups as stated by several reports. That along with the unstable profits being shown by them and the changing climate of consumers have all led to Indian startups making more losses or preparing for them.
As per a report by Business Standard, SoftBank one of the biggest tech investors in India from Japan has seen a whopping loss of $26.2 billion as given by its Vision Fund investment arm. The company has apparently invested more than $14 billion and according to the report “Its founder and CEO Masayoshi Son said that this year the firm may invest only half or a quarter of what it did last year.”
Y Combinator one of the leading Silicon Valley incubators and startup funds has also seemingly told its “portfolio founders to “plan for the worst” as fears of an economic downturn in the US grow” as per the Business Standard report. Y Combinator has investments in more than 150 Indian startups as per sources.
The various creative reasons being used by Indian startups, like creating circumstances that force employees to give voluntary resignation, stating reasons like company restructuring, performance issues, and more are just a mask. A mask to cover up the actual reason which is the lack of funding that is being caused due to the company itself not making as much of a profit as it should be.
However, It is noteworthy here that for every company that is laying off employees there are another 100 who are hiring. But going forward, given the economic condition of the world, the start-ups need to work on their fundamentals and plan ahead by optimizing their cost, as fundraising will be difficult in the days to come.