Despite being a company’s most valuable asset, employees are being laid off in large numbers all over the nation. The great Indian startups once considered to be the reason behind the rising economy are now laying off employees, increasing the unemployment rate and job insecurity in the country.

Layoffs refer to the temporary or permanent dismissal of an employee from a company. Most of the startups have fired employees permanently. To date, more than 16,500 employees have been laid off by 44 startups, including the big giants. As per reports, nearly 8000 employees will probably be fired by their workplaces in the first quarter of 2022 alone.

But what are the reasons behind the startup layoffs? Why would unicorn companies with high valuations lay off their important assets? What led to startup growth in India?

Let’s answer all your questions in this article:

Indian Startup Growth

A “startup” refers to a business that is just getting started. Startups are created by one or even more business owners who desire to provide a good or service they feel there is a market for. These businesses typically have large startup expenses and little income, which is the reason entrepreneurs seek funding from several sources, including angel investors.

When a startup reaches a valuation of more than or equal to $1 billion, it is considered a “unicorn startup.” In recent quarters, India has produced 100+ unicorn startups, ranking third after China and America.

Reasons behind the Indian Startup Growth:

  • Covid and the lockdown led to a massive rise in tech startups as people all across the world were spending time online on digital platforms. People all across the globe preferred online shopping, e-learning, online food ordering, etc. during the lockdown.
  • Students at various universities were marveling and willing to work in startups because of the modern work culture. Due to the low competition, startups provided better growth opportunities in a minimum duration.
  • Observing the rapid rise of unicorns and startups in the country, investors all across the world started pouring money into the Indian market.
  • Individuals and youth getting inspired by celebrity entrepreneurs with high-valuation startups started coming up with great innovative ideas to run a startup across the country.

This all led to the startup growth of 2021 and 2022. So, now the question is: despite the exponential growth, what led to the great Indian startup layoff?

Let’s understand in detail:

Truth behind the Startup Layoff 2022

The Indian startup ecosystem had the potential to make India the world’s biggest economy. The number and development of startups that are present in a country’s ecosystem are correlated with that country’s GDP.

Startups provide economies with new growth prospects, which greatly increases their GDP. Stronger economies provide supportive credentials that speed up the pace at which startups make headway.

Startups run on funding. Investors who believe in the potential of a company invest to make an idea into a successful business. In recent years, startups and investors focused more on growth and profitability. Startups started burning cash on expensive marketing campaigns, bulk recruitment, celebrity endorsement, etc. without thinking of profitability.

However, terrible events in the stock market shook the startup ecosystem. IPOs of great giants like Paytm failed terribly in the secondary markets. Other companies like Nykaa and Zomato have still kept their investor portfolios in red.

The stock market works on profitability and revenue growth. To be successful in the secondary markets. companies need to have consistent and growing profits.

Investors soon understood the importance of profitability and asked companies to start focusing on profits and revenue.

Post covid was another major reason for startup disruption as things were getting back to normal. As schools and colleges started, the tech industry witnessed a massive hit. In 2022, 14 ed-tech startups alone laid off over 7000 employees. As malls and flea markets reopen, the e-commerce sector suffers greatly. Similarly, OTT platforms are losing subscribers as theaters reopen.

Because of these post covid scenarios, startups are not able to meet investors’ expectations of maintaining profitability and generating consistent revenue. This led to the pessimistic behavior of investors toward the Indian market.

Increasing inflation all across the globe, especially in western countries is another major reason for the startup disruption. USA and Singapore have a significant investment in Indian startups. Increasing inflation made investors hesitant to invest their hard-earned money in startups.

To maintain profitability, investors asked companies to reduce operational and other unnecessary costs. As a result, startups started laying off employees on a permanent and temporary basis.

Not only startups but big giants like Amazon, Meta, and other companies also started firing employees to deal with the recessionary crises.

Bottom Line:

Understanding the scenario, it’s hard to predict how long this will last for. However, as a smart investor, you need not panic under such a situation and should keep investing in fundamentally strong and growing companies.

I hope you found this article informative and interesting. Let us know in the comments below what you think about the great Indian startup layoff. How long will this last, and will startups be able to generate profits?