The major reason cited by these companies is the changing market situation. The pandemic and resultant lockdowns led to a surge in online transactions, leading all of these online-focused companies to hire aggressively to meet demand during that period. But the past year has seen consumers increasingly moving to physical options, and limiting online spends.
Simultaneously, interest rates have risen, and recessionary fears have grown in the West, leading to venture capital and private equity funders turning cautious. That has adversely impacted startups’ ability to keep raising equity funding, and so the focus is shifting to profitability.
ShareChat said, “As capital becomes expensive, companies need to prioritise their bets and invest in the highest-impact projects only. Over the last six months, we have aggressively optimised costs across the board, including in marketing and infrastructure, among other cost heads, and ramped up our monetisation efforts. The decision to reduce employee costs was taken after much deliberation and in light of the growing market consensus that investment sentiments will remain very cautious throughout this year.”
Indian startups went through a funding winter in 2022, and the same might continue through 2023. Funding for Indian startups in 2022 was about $24 billion, a drop of 33% in comparison to 2021, according to PwC’s Startup Deals Tracker – CY22 report.
Shanti Mohan, founder of LetsVenture, an online platform enabling angel investment in early-stage startups, said the layoffs are not necessarily about the long funding winter, but bad hiring decisions by some of the founders who raised money. “They over hired and the rationale of building frugality into the business model was completely missing. If you see the recent announcements, those are more skewed towards debt financing than equity funding, as founders don’t want to expose their firms to lower valuations. Founders who couldn’t build businesses with sufficient funding should brace to revisit their businesses focusing on the fundamentals,” she says.
Human resources firm CIEL HR estimates that there was a 44% decline in hiring towards the end of 2022, in contrast to the spike in hiring at the beginning of the year.
Sudhakar Raja, founder & CEO of TRST Score, an HR risk management firm, says people getting laid off are those who bagged hefty offers in the last three years due to the surge in demand in tech-based startups. “First, they hired people because there was a need. Companies gave out salaries that people demanded. Now they are seriously looking at unit economics and performance appraisal. That is where a lot of people are losing their jobs,” Raja says.