Nearly 6,000 employees laid off by Indian startups in the first four months of 2023
- ByStartupStory | May 1, 2023
According to recent reports, Indian startups have downsized their workforce in the first four months of 2023 to reduce costs and achieve profitability, as funding has reduced significantly. In total, around 5,868 employees have been laid off by 41 startups, whereas last year, only eight startups were responsible for letting go of slightly more workers (6,040) during the same period.
According to Abhimanyu Saxena, the co-founder of Scaler, the companies that laid off employees at the start of 2022 were unable to survive without doing so. However, the recent layoffs are more of a precautionary measure. Previously, founders had a mentality of seeking capital and receiving it within a few months, but now they are aware that it’s no longer a reliable option. These statements were made by Saxena in an interview with Moneycontrol.
The layoffs in Indian startups have coincided with a period of reduced private equity and venture capital funding. Investors have been cautious due to the uncertainty brought on by high inflation, increasing global interest rates, the potential for a recession in the West, and the ongoing war in Europe, which has had an adverse impact on supply chains.
Startups with positive unit economics and a clear path to profitability have become the preferred choice for investment. As a result, startup founders are now focusing on these metrics to become eligible for funding. Just a year ago, these metrics were not a top priority for startups. However, the current scenario has forced many startups to moderate their spending, reassess their growth expectations, pivot from their existing business models, and in some cases, consider acquisition or closure.
According to Abhimanyu Saxena, startup founders now recognize the futility of waiting and burning cash on an unsustainable model for an entire year before being forced to shut down. As a result, downsizing staff has become a necessary step for many companies. Since the start of 2022, almost 90 Indian startups have collectively let go of 24,200 employees due to these circumstances.
Although the graphic presented is based on research by Moneycontrol and other media reports, Pristyn Care claims to have only let go of approximately 45 employees. This stands in stark contrast to the previous year, when startups in sectors like education and technology hired aggressively and accrued high employee costs as they aimed to maintain their rapid expansion, fueled by abundant funding.
According to Anirudh A Damani, the managing partner of Artha Venture Fund, companies that have overhired and exceeded their budget for talent without seeing a corresponding increase in productivity or demand face a difficult situation. Labour is the most expensive resource, and in such cases, tough decisions must be made.
Employee costs are the most significant expenditure in the edtech sector. According to FY22 results filed by the five edtech unicorns Unacademy, PhysicsWallah, Vedantu, Eruditus, and upGrad, these companies collectively spent about Rs 5,465 crore on employees, including non-cash ESOP costs, a 47% increase from the previous year’s expenditure of nearly Rs 3,724 crore.
When a company builds an extensive team during a hyper-growth phase, it becomes a fixed monthly cost, which may lead to layoffs during months with lower revenue due to market conditions. Indian edtech, which enjoyed a boom in 2021, has seen over half of the total layoffs since the beginning of 2022, with approximately 10,700 employees being laid off by startups in the sector.
India’s edtech industry has been hit hard by reduced funding and declining demand for online learning, resulting in a wave of job cuts. Engineering upskilling startup Skill-Lync is the latest casualty, having let go of 400 employees due to challenging macroeconomic conditions. According to co-founder SuryaNarayanan PaneerSelvam, the company has adjusted its delivery model for better learning outcomes using technology and experts, which led to some role redundancy. The company has moderated its growth expectations and slowed down some projects focused on the future.
Skill-Lync is the latest edtech startup to lay off employees due to the economic downturn and lower demand for online learning. The company has let go of 400 workers, and cited tough macroeconomic conditions and a need to moderate its growth expectations as reasons for the cuts. Other startups are also feeling the impact of the slowdown, and are adjusting their growth expectations accordingly.
Scaler, for instance, is focusing on sustainable growth, while companies that were expecting 50% growth are now preparing for 20% growth. When growth doesn’t meet expectations, companies may hold on to employees for a while, but eventually, they may need to let them go, according to Anirudh A Damani, Managing Partner of Artha Venture Fund.
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