B2B Unicorn Udaan Sacks 350 Employees A Week After Receiving $120 Million In Funding; Layoffs On The Horizon As Startups Struggle

B2B ecommerce unicorn Udaan has, in its second such round, planned to lay off 350 full-time employees in its quest for cost optimization and to achieve profitability.

The plan to lay off 10% of its employees comes after a week of the unicorn securing $120 million in convertible debt.

Udaan laid off employees after it followed a similar strategy just five months ago; however, this time round, it is not just the company’s full-time employees that are being given the pink slip, but a number of off-payroll contractual workers will also be shown the door. 

Udaan, the Bengaluru headquartered startup, helps connect small- and medium-sized businesses, wholesalers, as well as manufacturers, traders, and retailers to sell goods and other services. The company’s primary competition is with the likes of JioMart and Walmart-owned Flipkart‘s B2B segment.

Layoffs in the Midst of Funding

The Bengaluru-based company had reported just a week ago that it had raised $120 Million in convertible notes and debt from its existing investors. 

This is the second funding Udaan has received, as it had reported having raised fresh financing early this year, in January, to the tune of $250 million.

Of the $250 million – $200 million was raised through convertible notes and the remaining $50 million through debt.

Ironically, when it comes to funding, Udaan has been able to raise funds consistently; in the last four quarters alone, the startup has raised over $350 million in debt. 

Udaan also raised equity funding in January 2020, and then it was valued at $3.1 billion. Some of its investors include DST Global, Lightspeed Venture Partners, and GGV Capital.

The company operates across segments – lifestyle & electronics, home & kitchen, staples, fruits & vegetables, FMCG, pharma, toys, and in general merchandise.

The company website shows Udaan has more than 3 million registered users, 25,000-30,000 sellers across 900+ cities. The platform has over 1.7 million retailers, chemists, Kirana shops, hotels/restaurants/caterers, and farmers carrying out over 4.5 million monthly transactions.

Udaan was founded in 2016 by Vaibhav Gupta along with Sujeet Kumar and Amod Malviya, who are former executives of Flipkart.

Udaan had generated a revenue of INR 5919 crore in FY21, registering total expenses of INR 8,742 crore; however, the startup was able to cut its losses to INR 2,482 crore in that year from the previous years losses to the tune of INR 2,518.7 crore.

It is important to note that despite incurring losses and growing costs, the startup was interested in buying Metro Cash & Carry unit of Metro AG India Wholesale. 

Layoffs on the Horizon

Udaan CEO Vaibhav Gupta, earlier this year, had in an email to employees had communicated that the startup was on its way to having positive unit economics by the quarter – June 2022.

The email stated that the startup was on track to improve its unit economics by more than 1000 basis points over the last year.

Despite the positive note, Udaan, as per reports, may have already laid off employees to the tune of 1000 in number; the startup, as part of cost-cutting measures, had laid off 180 employees in early June. 

However, it was said then that the total number of employees laid off could have been much higher, around 600. 

Udaan has a total of 3000 employees on the company’s payroll, while 10000- 12000 people are employed with the startup through outsourcing firms. 

Those employed with the startup through outsourcing firms are in roles that require loading, unloading packages and delivery workers; the reduction in their numbers comes in as the firm has also reduced the number of warehouses. 

However, Udaan has stated that it would provide the necessary support to those being laid off. 

The e-commerce unicorn’s valuation turned slightly from $2.8 billion in 2019 to $3 billion in January 2021 compared to other e-commerce peers. However, this segment has seen a massive jump during the pandemic days.

The buzz in the market is that Udaan is aiming for an IPO in the next 12-18 months. 

Winter Has Come

The Indian startup ecosystem had already forecasted that the next two financial years would be challenging, and the ongoing funding crunch has only proved that this may indeed be true. 

Therefore, many startups have resorted to laying off employees as part of the strategy to contain costs and increase their sustenance chances. 

As per recent reports, Indian startups have already laid off more than 15000 employees in FY22, and of all the startups in different categories, the worst hit is the edtech sector so far.

Financial Year 2022, 

The financial year 2022 is almost to an end, and yes, this year has not been a smooth one for the startup ecosystem; 2021 itself was not a great year either and coupled with the financial funding woes, it is getting significantly tricky for startups across all categories. 

So far, 44 startups have laid off employees, which include unicorns like BYJU’S, Chargebee, Cars24, LEAD, Ola, Meesho, MPL, Innovaccer, Udaan, Unacademy and Vedantu.

The Edthech sector has clocked the highest number of layoffs so far, with 14 edtech startups laying off 6,898 employees in 2022

Several macroeconomic factors have brought on the funding winter – earlier this year, the public equity markets plummeted, pressured by the Russian – Ukrainian conflict, which affected all economies worldwide, resulting in respective governments adopting anti-recession measures. 

These measures led to increasing interest rates, making debt expensive and sapping both public and private equity markets of liquidity.

To add to the mix, the US Dollar has been gaining strength compared to most of the major world currencies, which includes the Euro and the Pound. 

The Indian Rupee has also been struggling, although the impact has not been as significant as other world currencies. The rising US Dollar, stimulated by increased interest rates, has compelled limited partners to hold onto their money in safe havens, reducing liquidity with venture capitalists.

The Funding Trend 

Funding in Indian startups has continuously declined since the start of 2022. In January, it raised $4.6 Billion, and by October, Indian startups could only raise $1.3 Bn, which is significantly less than what it raised last year.

EdTech Companies Hit Hard

Edtech has seen the most layoffs, followed by consumer services and ecommerce. The three sectors have collectively seen 26 startups lay off 13,529 employees, which points to the fact that 9 in every 10 employees laid off were working in either consumer services, ecommerce or edtech.

In particular, edtech has come under intense scrutiny across the country. Not only have 13 edtech startups, including four of the seven edtech unicorns, laid off 6,898 employees, but the sector has also seen five startups shut down in 2022.

Conclusion: Those employed in the startup segment need to brace themselves and look for other opportunities, as the startup ecosystem is indeed struggling at the moment.

With most startups taking cost-cutting measures in order to achieve profitability or as a strategy to outshine the funding woes and increase their chances of survival through the next two years, we will hear of more layoffs happening in many of these ventures