Startups shed flab amid funding slowdown

Bengaluru: Startups are looking to prune costs amid tightening of larger-sized funding rounds. They are doing that by shedding staff.Over the past few weeks, more than 1,800 contractual and full-time employees have been fired from ed-tech firm Unacademy, social commerce startups Meesho and Trell, online learning platform Lido Learning and furniture rental startup Furlenco. Some of these companies may look to cut more jobs, people in the know said.The trend is likely to play out further, though the early-stage funding ecosystem has yet to significantly taper off. Investors have begun to ask high-growth companies to go back to basics — chase profits and reduce their cash burn, multiple people told ET.ET spoke to a number of startup founders, investors and analysts for this story.They all say the layoffs potentially centre around late-stage startups that are highly valued and have significant cash burn, with a marked slowdown in large financing rounds ranging between $100 million and $150 million.Cash burn is a measure of negative cash and is a metric used commonly for loss-making startups.In March and April, as many as four unicorns — or privately held companies with a valuation of $1 billion or more — were minted in India, compared to 10, during the same period last year. So far this month, no new unicorn rounds have been announced, against eight new ones in April 2021, signalling the muted market for expensive funding rounds.Last year overall was a record-breaking one for startups, with 40 new entrants into the unicorn club.Industry experts say if these startups fail to raise newer rounds, the layoffs could deepen amid a funding slowdown.“These layoffs are happening across businesses and segments…. It is due to aggressive hiring by some startups and change of plans subsequently,” said Aditya Narayan Mishra, chief executive of Ciel HR Services, a staffing agency. “Some companies are finding it hard to transition post-Covid-19.”Mishra said ed-tech startups, for instance, were building products exclusively online and they are finding it hard to deploy talent as the world is now opening up.“While really good companies will still get money, it will be five times tougher to raise at a certain price,” said Ashwin Damera, cofounder and chief executive of edtech firm Eruditus, which raised $650 million in August last year at $3.2 billion valuation. “If somebody raised at a $1 billion valuation last year, they have to work harder now. This is also why investors are telling their startups that ‘unless you are okay with a down round, start conserving cash’…”AccountabilityIn a tougher funding environment, companies will be more wary about taking risks and stick to their core competency, said Rahul Chowdhri, cofounder and partner of Stellaris Venture Partners, an early-stage investor in brands like Mamaearth, Whatfix, Shop101, and Slintel.“Indian startups have seen such cycles in the past and this is possibly the fourth time in the last 15 years that such a correction is taking place,” he said.There isn’t any dearth of capital, but late-stage investors will focus on better quality businesses as the threshold for these investments increases, he said.“It's not a funding freeze by any means,” Chowdhri added.Multiple investors and analysts told ET that the average closure time for a late-stage deal has moved to about six months due to heightened due diligence and probing queries from limited partners (LPs) to investors.Usually, late-stage deal closures average around two months, but last year was an exception, with some Indian startups closing deals within weeks.“Beyond a point, layoffs cannot solve the problem of unit economics. If operational unit economics is not achieved then layoffs may continue…,” said Ankur Pahwa, partner and ecommerce and consumer internet leader, EY India. 91133263As they had cash on hand, several startups went shopping last year.The total acquisition deals climbed to 326 in the startup ecosystem last year, according to data sourced from research firm Tracxn.“Some of these startups made multiple acquisitions last year, with many of them structured as acqui-hires. They are now forced to streamline since they cannot have flab in terms of duplication of talent across business lines and skill sets,” said Amit Nawka, partner, deals and startups leader, PwC India.Most of such right-sizing does not happen immediately as companies sign contracts to retain talent of the target company for at least 12 months during the integration period, Nawka said. This could be another possible reason for the current round of layoffs.Unacademy had closed 10 acquisitions between 2020 and 2021, while also deciding to shut down K-12 learning platform Mastree, which it had acquired in 2020.

Startups shed flab amid funding slowdown
Bengaluru: Startups are looking to prune costs amid tightening of larger-sized funding rounds. They are doing that by shedding staff.Over the past few weeks, more than 1,800 contractual and full-time employees have been fired from ed-tech firm Unacademy, social commerce startups Meesho and Trell, online learning platform Lido Learning and furniture rental startup Furlenco. Some of these companies may look to cut more jobs, people in the know said.The trend is likely to play out further, though the early-stage funding ecosystem has yet to significantly taper off. Investors have begun to ask high-growth companies to go back to basics — chase profits and reduce their cash burn, multiple people told ET.ET spoke to a number of startup founders, investors and analysts for this story.They all say the layoffs potentially centre around late-stage startups that are highly valued and have significant cash burn, with a marked slowdown in large financing rounds ranging between $100 million and $150 million.Cash burn is a measure of negative cash and is a metric used commonly for loss-making startups.In March and April, as many as four unicorns — or privately held companies with a valuation of $1 billion or more — were minted in India, compared to 10, during the same period last year. So far this month, no new unicorn rounds have been announced, against eight new ones in April 2021, signalling the muted market for expensive funding rounds.Last year overall was a record-breaking one for startups, with 40 new entrants into the unicorn club.Industry experts say if these startups fail to raise newer rounds, the layoffs could deepen amid a funding slowdown.“These layoffs are happening across businesses and segments…. It is due to aggressive hiring by some startups and change of plans subsequently,” said Aditya Narayan Mishra, chief executive of Ciel HR Services, a staffing agency. “Some companies are finding it hard to transition post-Covid-19.”Mishra said ed-tech startups, for instance, were building products exclusively online and they are finding it hard to deploy talent as the world is now opening up.“While really good companies will still get money, it will be five times tougher to raise at a certain price,” said Ashwin Damera, cofounder and chief executive of edtech firm Eruditus, which raised $650 million in August last year at $3.2 billion valuation. “If somebody raised at a $1 billion valuation last year, they have to work harder now. This is also why investors are telling their startups that ‘unless you are okay with a down round, start conserving cash’…”AccountabilityIn a tougher funding environment, companies will be more wary about taking risks and stick to their core competency, said Rahul Chowdhri, cofounder and partner of Stellaris Venture Partners, an early-stage investor in brands like Mamaearth, Whatfix, Shop101, and Slintel.“Indian startups have seen such cycles in the past and this is possibly the fourth time in the last 15 years that such a correction is taking place,” he said.There isn’t any dearth of capital, but late-stage investors will focus on better quality businesses as the threshold for these investments increases, he said.“It's not a funding freeze by any means,” Chowdhri added.Multiple investors and analysts told ET that the average closure time for a late-stage deal has moved to about six months due to heightened due diligence and probing queries from limited partners (LPs) to investors.Usually, late-stage deal closures average around two months, but last year was an exception, with some Indian startups closing deals within weeks.“Beyond a point, layoffs cannot solve the problem of unit economics. If operational unit economics is not achieved then layoffs may continue…,” said Ankur Pahwa, partner and ecommerce and consumer internet leader, EY India. 91133263As they had cash on hand, several startups went shopping last year.The total acquisition deals climbed to 326 in the startup ecosystem last year, according to data sourced from research firm Tracxn.“Some of these startups made multiple acquisitions last year, with many of them structured as acqui-hires. They are now forced to streamline since they cannot have flab in terms of duplication of talent across business lines and skill sets,” said Amit Nawka, partner, deals and startups leader, PwC India.Most of such right-sizing does not happen immediately as companies sign contracts to retain talent of the target company for at least 12 months during the integration period, Nawka said. This could be another possible reason for the current round of layoffs.Unacademy had closed 10 acquisitions between 2020 and 2021, while also deciding to shut down K-12 learning platform Mastree, which it had acquired in 2020.