As per the recent news floating around the internet, we came to know that in the most recent round of layoffs, startups like Unacademy, Meesho, Furlenco, Lido Learning, and Trell laid off about 2,000 full-time and contractual employees. But why the decline in size? Are these heavily backed startups attempting to cut costs? Is there a startup-related disaster cooking?
There are various issues at play here, since questions about the downsizing motives have been raised. The main driver is continual investor pressure on profitability and exit paths in many older firms. After two years of scaling up and growth experiments, entrepreneurs are now focusing on sustainability and profit and return extraction.
Moreover, Investors have begun urging high-growth companies to return to basics, chase profits, and reduce cash burn in the case of loss-making startups, according to the sources. In the first four months of 2022, Indian startups laid off 6,900 workers. Over 1,200 staff were laid off by unicorns like Vedantu and Cars24 in May alone.
Impact of Covid-19
As per the sources, this is what we came to know. According to the Chief executive of Ciel HR Services, Aditya Narayan Mishra said that Layoffs are occurring in a variety of industries and segments. It’s owing to some firms’ aggressive hiring practices and subsequent strategy changes. Transitioning post-Covid-19 is proving difficult for several businesses. He went on to say that because the globe is suddenly opening up, most ed-tech businesses are producing products purely online and have found it challenging to deploy talents.
Furthermore, another source said that while extremely good startups will still get cash, collecting funds at a specific price will be 5 times more difficult. They acquired $650 million in August of last year at a valuation of $3.2 billion. Someone who raised money at a $1 billion value last year will have to work even harder this year. This is also why investors are advising their firms to start saving money unless they are alright with a down round.
Lack of Talents
Another factor for the layoffs is the firms’ lack of talent as a result of a slew of acquisitions last year. In 2021-22, 326 similar deals were reported by ET. As the globe becomes more open, these businesses are being compelled to eliminate employees with similar skill sets to save money. Between 2020 and 2021, Unacademy alone purchased ten firms. Last year, there were no layoffs since most companies include a clause in their contracts that guarantees employee retention for at least 12 months following acquisition.
