The worst for Indian startups is yet to come — be prepared for layoffs, unicorn slowdown and startup shutdowns in 2022

• Indian startups raised only $1.6 billion in April 2022, which is almost half of the capital raised last year in the same period.
• VerSe Innovation — the parent company of Dailyhunt and Josh — raised the biggest funding round last month.
• Indian startups are currently facing pressure from investors to focus on profitability, We Founders Circle’s Gaurav VK Singhvi added.

Things are not as bright for the Indian startup ecosystem as they were last year. The segment which thrived during the pandemic is now facing the brunt of the Russia-Ukraine war, leading to a slowdown in their capital raising ability.

According to the latest report by IVCA-EY, Indian startups raised only $1.6 billion in April 2022. This is almost half of the capital raised by the same ecosystem in April 2021. To make matters worse, no company entered the unicorn club last month whereas April 2021 had flagged off the momentum of unicorn creation last year with eight new additions.
Source: Media reports

Slowdown in unicorn creation

According to several experts Business Insider spoke to, the slowdown in unicorn creation is likely to continue all through the second quarter till June 2022 but this is not something to worry about.

Gaurav VK Singhvi, cofounder of investment firm We Founder Circle, further explained that the startup market has been witnessing an upward trend for the last 18 months and “now for a few months it looks a little slow”. He also specified that the trend would be quite positive in the long term and more unicorns may be created this year.

But there is more to it than just the number of unicorns.

Even higher valuation may be an issue

The decline in funding in April 2022 is majorly because of the decline in large funding rounds. VerSe Innovation — the parent company of Dailyhunt and Josh — raised the biggest funding round last month when it bagged $805 million at a valuation of $5 billion. This represented nearly half of the capital raised by Indian startups in April.

While Dailyhunt has been able to increase its valuation amid this funding slump, not all have been able to do so.

According to Media reports, ecommerce company Meesho has been trying to close another funding round at a valuation of around $8 billion but no investor is willing to accord it to the company at the moment. Instead, the investors are unwilling to accord any higher valuation to Meesho — which was valued at $4.9 billion last year — due to its monthly cash burn rate of $46 million.

Singhvi of We Founder Circle explained that several startups have ignored their bottom line for a long time and the investors are now putting pressure on these companies to focus on their finances and numbers. “Revenue is all good but now they are looking at profitability and long term sustenance,” he added.

Layoffs come off as a rescue plan for several startups

Several companies have already started preparing for the worse. According to Business Insider’s calculations, Indian startups laid off 6,900 employees in the first four months of 2022. In May alone, unicorns like Vedantu and Cars24 fired over 1,200 employees.
Source: Media Reports, Company Announcements

Vamsi Krishna, chief executive officer and co-founder of Vedantu, in a blog post noted that they had to take this harsh decision since capital may be scarce in the upcoming quarters due to “war in Europe, impending recession fears, and Fed rate interest hikes”.

Yogita Tulsiani of iXceed Solutions and Sarbojit Mallick of Instahyre emphasised that there are more layoffs to come in the near future.

Tulsiani, the managing director and cofounder at global tech-recruiter provider iXceed Solutions, noted that both low-funded and highly-funded startups would be impacted by this drive as most companies carried out aggressive hiring drives during the start of the pandemic and are not able to handle their workforce now.

Each company has a long term plan and unprecedented scenarios such as the events happening now can impact their hiring and team sizes, Sarbojit Mallick, cofounder of advanced hiring platform Instahyre, added. He noted that the plan would also include consolidation of internal departments, streamlining of operations and tightening of the gaps.

“The fear [for the workforce] is further mounted by rationalisation in funding which will weed out quality companies and hence lead to winding up of some startups,” Neha Khanna, director at management consultancy firm ValPro, concluded.

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