As funding dries up, start-up layoffs are on the rise

Yatti Soni | | Updated on: May 20, 2022

In the past few months, almost 2,594 employees have been laid off across multiple start-ups

With the funding environment deteriorating, even well-funded start-ups have started downsizing their teams. The latest is Cars24, which has laid off 600 employees, citing performance-related issues. This follows layoffs at several other start-ups, including some well-known Unicorns in the recent past.

However, experts feel the trend of companies rationalising their business verticals and burn rates by trimming down their workforce is likely to not only continue but may accelerate in the near future. Start-up investors also said that the lack of funds may even result in consolidation and an increase in demand for venture debt. In the past few months, almost 2,594 employees have been laid off across multiple start-ups, including unicorns such as Cars24, Unacademy, Meesho, and Vedantu, according to a BL estimate. 

Unacademy and Meesho said that the layoffs were done due to role redundancy. whereas, Vedantu CEO Vamsi Krishna penned down a note to say this will help the company build a longer capital runway given the uncertainties of the outside world and tightening of capital availability. 

Speaking to BusinessLine, about the possible reason for this spate of layoffs, Abhishek Sharma, Managing Director at Nexus Venture Partners, said, “Every company is now at some level trying to reprioritise where they are investing against where they are burning cash. When capital is abundant, there is hope that, no matter what, more capital will keep coming. At that time, these prioritisation questions can sometimes take a backseat. But now there is a lot of focus on company building and identifying what matters for the business.”

‘Consolidation phase’

Adding to this, Ankur Bansal, Co-founder and Director of Blacksoil, said, “If you have a lot of funds, you can run multiple businesses or do many experiments. Then there comes a stage when you realise certain business lines are not working. At the end of the day, you have to show investors that you are making money. Whatever we are seeing right now is part of the consolidation phase beginning. Possibly, we will see a lot of that going forward.”

He added that when companies are not able to raise capital, the next thing they will look for is consolidation. Bansal also noted that the funding crunch can even result in valuation corrections for cash-guzzling companies that were valued on metrics rather than actual revenues or potential cash-flows. 

Further, talking about the impact of layoffs, Rituparna Chakraborty, co-founder and Executive Director of TeamLease Services, said, “Most people who are getting laid off are able to find new job opportunities in a short period of time. From my perspective, everyone who joins start-ups should be cognisant of the fact that there is both a high chance of success and a high chance of failure in new businesses. My concern is about the few instances where there was no dignity in the way layoffs were done. That is something which has to be controlled.”

Published on May 19, 2022
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