Indian startups Layoffs over 20,000 in 2022: Will There Be Stability in 2023?

Indian startups Layoffs over 20,000 in 2022: Will There Be Stability in 2023?

The startup industry suffered greatly from a worldwide closure when the Covid-19 outbreak hit in early 2020. Most businesses hurried to cut spending and stop hiring to withstand the extraordinary crisis. However, the shake-up did not pan out as badly as anticipated until the following year or so.

Investors placed large bets on a new era of capital-efficient technologies and shrewd business practices as markets were buoyant and money for tech firms continued to flow. Even the mechanics of the labour market favoured employees.

The Great Resignation, when a large number of workers left their jobs in search of better opportunities, coincided with a surge in hiring across the board as employers scrambled to close the skill gap.

The situation changed, however, when the Russian invasion of Ukraine began in February 2022. The impact of geopolitical unpredictability on the world economy, in addition to failing markets, rampant inflation, and the worry of a protracted global recession, has curbed the newfound euphoria in the startup world in India and overseas.

As investors’ fear of missing out (FOMO) has given way to conventional belt-tightening, the thesis for businesses large and small has shifted from “growth at any cost” to earning a profit. In other words, this year has been marked by “loud” layoffs (done vehemently on all kinds of communication platforms, especially social media), and by all indications, the havoc will certainly last well into 2023.

20,000 Employees Fired from Indian Startups, Counting

Startup Layoffs

For those working with startups, the last several months have been depressing. In what has been dubbed the worst year for white-collar labour in the IT sector, more than 50 startups have let go of their staff in India, while thousands of huge tech corporations worldwide are handing pink slips.

PayU India, a prominent financial company, just entered the fray. By eliminating 150 employees earlier this month, the firm reduced its headcount by about 6%. The layoffs at the Naspers-owned business affected several teams, but they mostly affected PayU’s India division and Wimbo, a startup it purchased in 2019 that specialised in payment security and mobile payment technologies.

In 2022, PayU won’t be the only employer to reduce its headcount. About 50 firms have laid off a sizable number of workers since the start of the year, claiming financial issues and reorganisation; some startups have moved responsibility for the layoffs to individual employees’ performance, calling the practice usual.

As of December 25, 2022, 52 Indian firms had requested the departure of 20,000 workers, including several unicorns like BYJU’S, ChargeBee, Cars24, LEAD, Ola, Meesho, MPL, Innovaccer, Udaan, Unacademy, and Vedantu in addition to the publicly traded food tech Zomato.

Between February and December 2022, Indian startups made layoffs of employees. The aftermath of the startup funding bull run that occurred the prior year made January the lone exception. However, as the funding influx slowed, many firms discovered they had extremely limited runways, and many were asked to depart.

It was not shocking because a reality check had been long overdue following the FOMO-caused financial wave in 2021. As a result of soaring valuations and ongoing macroeconomic challenges, we are currently witnessing a significant correction in the startup funding market.

A 2022 correction of up to 24% was predicted in a January 2018 Inc42 research on funding for Indian IT startups. The amount of startup capital in India between January 1 and November 29, 2022, was $24 Bn, a 35% decrease from the same time last year.

The slaughter of layoffs wasn’t seen by all startup industries, either. The worst offender in India is edtech, which is then followed by consumer services and e-commerce businesses. About nine out of every ten employees of Indian startups that were laid off in 2022 worked in one of these three areas, which together accounted for 15,424 layoffs.

These industries, incidentally, are notorious money hogs, and many firms in these fields were forced to terminate their employees to minimise costs when startup funding dried up.

Numerous circumstances can eventually lead to a layoff. But this type of development does not happen all at once. Even after a firm publicly states a rough estimate, people may stay with a company for months before leaving.

However, not all layoffs are as severe as the iconic downsizing at Twitter. Numerous HR professionals contend that instances of “silent resigning,” forced resignations, irrational company goals, and tighter “performance” standards constitute “passive layoffs” that will continue to harm people’s ability to support themselves.

For example, several media publications have criticised how internet giant Google and its parent Alphabet are ready to get rid of 10,000 “bad performers.” The “performance” label may have an effect on layoffs severance payments as well as their ability to advance in their careers.

Google Layoff

More importantly, when IT (and other) organisations from all sectors believe that cutting personnel is the only way to reduce cash burn during any downturn, it is certain to influence the “trust” factor and professional ethics.

Amid a funding crunch and the aftermath of an economic downturn, how justified are Indian entrepreneurs in joining the layoff bandwagon? To analyse the causality of the job loss scenario, it is necessary to take a detailed look at the industry figures.

Capital crunch and restructuring are the main causes of layoffs

42.3% of the startups that laid off their employees cited organisational restructuring, such as M&A-related redundancies, in the Indian Startup Layoff Tracker, which tracks startup layoffs throughout the nation.

As an illustration, BYJU’S laid off 2,500 workers mostly due to role duplication and the ensuing restructure. The edtech unicorn was actively acquiring businesses last year, purchasing the chain of test-prep coaching centres Aakash, the coding-focused edtech WhiteHat Jr, and numerous others for a combined $2.3 Billion.

A major factor in the redundancies may have been the company’s announcement that it will combine all of its operations under a single organisation.

Approximately one-third of the laid-off individuals lost their employment owing to cost-cutting, according to the data that is currently available. This figure should be somewhat higher, however, the current analysis only takes into account the formal justifications for layoffs provided by the startups.

Another 11% of employees were added to the list of those who would be laid off due to financial restrictions and unfavourable economic conditions (read: lack of outside funding and revenue decline). In general, 46% of employees at Indian startups were laid off in 2022, with the funding shortage listed as the main cause.

Most Workers Are Fired by Late Stage Startups

Over two-thirds of startup layoffs in 2022 occurred in late-stage firms. The percentage of layoffs accurately depicts the state of late-stage startup funding. In 2022, late-stage funding was down by 55% from the previous year ($31.99 billion in 2021 against $14.19 billion as of November 29, 2022), and it had a 97% YoY decline in July 2022.

In a typical layoff in 2022, late-stage entrepreneurs fired 17% of their employees, compared to 28% for growth-stage companies and a staggering 54% for early-stage startups, data.

However, considering the average headcount of late-stage companies, layoffs involving 17% of the workforce might be significantly greater than the 54% laid off by early-stage companies, the latter of which employ only a small portion of their late-stage counterparts. The worst offenders include education technology, consumer services, and e-commerce.

Edtech, consumer services, and eCommerce shed the most workers among the 10 startup industries in India that experienced at least one layoff in 2022. 85.7% of the 17,989 people laid off during the large layoff year worked in one of these three industries, actively lowering the number of employees. It’s interesting to note that India has the most unicorns in the edtech industry.

But influential companies like BYJU’S, Unacademy, and Vedantu, as well as crucial players like Toppr and WhiteHat Jr, abruptly let go of employees. And to make matters worse, relatively few tech businesses have achieved profitability despite being money hogs.

In actuality, only around a third of India’s 107 unicorns are profitable, with the remainder burning money quickly without ever turning a profit. 2022 should be an utterly forgettable year for Indian tech startups. Edtech enterprises in the K-12 and test prep segments are facing a litmus test as brick-and-mortar educational institutions and coaching programmes began operating following widespread immunisation and the fading of the pandemic.

They run the risk of failing despite their exorbitant values if their offerings aren’t modernised to keep up with the times. Five of the eight enterprises that failed in 2022 were in the edtech sector, making up 62.5% of the closures. This is ominous.

The Worst Wave Of Dismissals Since COVID-19

Byju's The learning App

There was a slaughter during the first few months of the 2020 lockdowns as Indian firms let go of close to 8,200 staff between April and June.

To withstand the supply chain disruptions that ground operations to a halt for several months at a time, the majority of B2C startups, including unicorns like Ola, Zomato, Swiggy, BookMyShow, MakeMyTrip, Livspace, BharatPe, Lendingkart, and many others, laid off thousands of workers.

But despite appearing to be the end of the world, 2021 saw record-breaking funding. A few consumer-facing industries, such as e-commerce, consumer services, edtech, and finance, used digital technologies to meet consumer demand for affordability, convenience, and safety.

The fact that they all garnered billions of dollars and incredible valuations while expanding at a fast pace to seize market share is understandable. The stats are even bleaker than they were two years ago in 2022.

This time, 1,760 employees per month have been let go by Indian firms, which have cut back on hiring by about half. Additionally, the funding winter ($24 billion in 2022 versus $42 billion in the previous year) has continued unabated as a result of too cautious investor sentiment.

There is a strong message in circulation. Consumers and investors will eliminate firms that can’t survive in a tech-driven world and a brutal economy in the wake of predictions of a worldwide recession that might linger for years (think of the dot-com bubble or the 2008 global crisis). Layoffs and a hiring moratorium will continue until these businesses hit the sweet spot where they sell more, spend less, and attract fresh capital.

Tech Layoffs Increase Worldwide; Impact India’s Labor Force

Although there have been hundreds of layoffs at Indian startups, they are nothing compared to what is occurring at some of the world’s greatest software firms.

Elon Musk Twitter

Twitter is a good example. Elon Musk, the inventor of Tesla and SpaceX, sacked almost 3,700 workers worldwide before acquiring the microblogging platform following a well-publicized saga that began in April of this year. 180 Indian employees were affected, and the team’s size decreased from 230 to a few dozen persons.

The single largest batch of tech layoffs in 2022 was announced by Meta just days after the Twitter massacre. The parent firm of Facebook, WhatsApp, and Instagram reduced its employment base by 13% as part of a corporate-wide personnel reduction, and more than 11,000 were given the option to resign.

Interestingly, Meta’s 2022 layoffs did not affect its 400-person India team.

Amazon followed suit, and according to media sources, the e-commerce behemoth may fire up to 10,000 employees worldwide, perhaps including hundreds of Indian workers. The leading online retailer in India has also closed down several business sectors.

The business insists it has not yet terminated a single employee in India despite being mired in a legal dispute with the country’s labour ministry over the alleged layoffs. Amazon reportedly encouraged workers from its shuttered businesses to join other verticals or submit their resignations.

However, not all is lost in the eCommerce sector. To protect growth and profitability, e-commerce giant Flipkart or India’s expanding D2C sector have not yet implemented layoffs.

Google and its parent company Alphabet have reportedly announced plans to lay off 10,000 workers worldwide, which might have an impact on its Indian staff. In addition to Big Tech, networking giant Cisco has laid off more than 4,150 workers, or nearly 5% of its worldwide workforce. Numerous employees in India would also be impacted by Cisco’s layoffs, according to media sources.

1,35,000 employees have been affected by tech layoffs as a whole in 2022, which is far worse than the Dot Com bubble in the early 2000s, which caused 120,000 individuals to lose their employment.

What’s Coming Up In 2023

A few conclusions will be drawn from an analysis of the timeframes of significant layoffs throughout 2022. Initially, most of the firings took place near the end of 2022, predicted a new series of firings to start in 2023. To give one example, whereas Meta, Amazon, and Twitter announced layoffs in November 2022, Google and other digital titans may begin terminating employees as early as January 2023.

For the majority of the year, local businesses like BYJU’S, Unacademy, Vedantu, and others have been shrinking. But starting in October, the layoffs became more severe. The fact that 16 startup layoffs have occurred since October 1 and have affected 5,488 employees—or 30% of all employees affected by layoffs this year—supports this.

Also widely agreed upon is the fact that businesses engaged in tech, eCommerce, social media, and consumer services will be most adversely affected.

The contagiousness of layoffs inside the tech industry is another intriguing development that has come out of these debates. According to Stanford professor Jeffrey Pfeffer, corporations may just be firing workers to copy other businesses, creating a snowball effect.

But that is merely a portion of it.

When asked about additional important factors, HR professionals say that these industries are now maturing and that businesses are aiming to improve their performance over the coming quarters in preparation for public offerings.

Additionally, a rise in mergers and acquisitions has been brought on by the capital shortage in 2022. More individuals will lose their employment owing to redundancies as M&A agreements increase across the industries most impacted by the funding restriction.

Simply put, companies in capital-intensive industries like e-commerce, e-learning, and consumer services, as well as those in low-margin industries like finance, need to reconsider their fundamentals before hiring resumes as usual.

The nation’s IT/ITeS sector’s current state is another sign that layoffs may continue well into 2023. Media sources claim that IT industry behemoths Infosys, TCS, HCL, and others have stopped hiring since October 2022, let go of university hires, and are preparing to pick out underperformers in the next months.

As is well known, any macroeconomic change has an impact on Big Tech, then IT majors, and finally startups. Similar to the liquidity crunch, the private equity market experiences the pressure a few months after the public equities market does.

The slowdown in employment in the IT/ITes industry has equally spread to the startup community. Startups slowed down hiring at the same time that IT/ITes corporations did. Both the RazorpayX Payroll report and the Monster Employment Index show that hiring in the IT/ITes and startup sectors has decreased by 19% and 61% year over year.

According to Pfeffer’s “layoff contagiousness” argument, the effects of layoffs in Big Tech and a hiring freeze by IT/ITes majors may inspire startups to fire additional workers.

Final Verdict

Stakeholders have often expressed concern over startup layoffs and their potential effects on the labour market in the long run. Given that the startup ecosystem has become a significant employer, its importance has increased. 7.98 Lakh people were employed by Indian startups, according to official statistics that were given to Parliament in July 2022.

Can we expect a swift turnaround in light of the increased expectations from the startup sector?

Naturally, it depends on startup investors and their willingness to relax the purse strings. Dry powder is no longer in short supply as local and international VCs have already announced India-specific funds worth $16 Billion in 2022.

Investors will probably approach cautiously, notwithstanding the capital at their disposal. They are also advising portfolio companies to cut back on burn rates and move toward profitability. Startups must therefore cut any superfluous costs for a while, including a large personnel base.

In a nutshell, there is a rehabilitation road, but no specific timetable. Before the funding winter is fully over, it might take another six months to a year. However, the only startups that will survive this recession are those with the best fundamentals, adaptability, strategic mindset, and resourcefulness.

However, when all is said and done, tens of thousands of workers have lost their employment as of 2022, and there could not be any immediate relief in the future.

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