Although start-ups are resorting to laying off employees as they cite cost cutting as the main reason, the data shows that the overall funding for these start-ups during January-April this year is about the same as last year. past and even the number of companies raising more than USD 100 million is also higher than last year. However, experts say startups are laying off employees to conserve cash to prop up profitability as high-value funds are now slowing due to current volatile market conditions.
About $12 billion was invested in early-stage and growth companies between January and April of this year, compared with $11.2 billion injected during the corresponding period last year, according to data from Venture Intelligence.
Interestingly, the data showed that deals involving financing of $100 million and above are also higher this year compared to last year. Some 33 companies raised funds of $100 million or more during January-April 2022, up from 29 during the same period last year, according to data from Venture Intelligence.
Popular startups in India including Unacademy, Cars24 and Vedanta have laid off over 5,000 employees in India this year. Ola has laid off around 2,100 employees between January and March this year, followed by Unacademy (over 600), Cars24 (600) and Vedantu (400).
Other than this, e-commerce company Meesho has laid off 150 employees, furniture rental startup Furlenco 200, influencer-led social commerce startup Trell 300 employees, and OkCredit has laid off 40 employees.
Ajay Malik, managing director and head (investment banking advisory) at RBSA Advisors, said: “Given the current volatile market conditions, startups are aiming to conserve cash and shore up profitability. Layoffs by startups may have accelerated due to concerns about the capital crisis.”
According to the latest data from Venture Intelligence, 33 Indian startups raised around $7.34 billion between January and April 2022. However, the Indian Tech Unicorn Report 2021 showed that in 2021, only 11 startups had raised around $7.16 billion through through public offerings. “One97 Communication (Paytm) raised India’s largest ever IPO with an issue size of Rs 18.3bn (about $2.46bn).”
According to the data, 29 deals worth $100 million or more during January-April 2021 covered around 71% of overall seed investments, while 33 such deals this year accounted for only 60% of total funding .
RBSA’s Malik said that overall this year has seen about the same funding during January-April as last year, but the number of major deals is lower compared to last year. “Falling valuations, slowing funding rounds and shrinking deal sizes add to the troubles for startups,” he said, adding that the gloomy market environment could slow funding in the near future. .
In a recent letter to employees, Unacademy co-founder and CEO Gaurav Munjal said: “We must learn to work under constraints and focus on profitability at all costs. (Financing) winter is here. We must change our ways. Instead, we will focus on organic growth channels.”
He added that some people predict this funding winter could last 24 months. “We must adapt. This is a test for all of us. We must learn to work under constraints. We must focus on profitability at all costs… We must survive the winter.”
Sequoia Capital Note for Businesses
In a 51-page memo, leading venture capital firm Sequoia Capital recently told the founders of its portfolio companies that the era of being rewarded for hypergrowth at any cost is fast coming to an end with investors shifting toward companies that can demonstrate current profitability.
“Equity is getting more expensive while macro is becoming less safe, leading investors to deprioritize it and pay less for growth,” he said.
Sequoia also said loose monetary policies globally in the past two years had led to negative interest rates, making it easier for growing companies to raise funds and boosting valuations. Now, with rising interest rates, money is no longer free, which can have huge implications for valuations and fundraising.
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