Indian Startups Restructure, Cut 18,000 Jobs In 2022: Will 2023 Bring Stability?

When the Covid-19 pandemic struck in early 2020, the startup world was pummelled by a global shutdown. Most companies scurried to slash spending and freeze hiring to survive the unprecedented crisis. But for the next year or so, the shake-up never came to the worst as expected. 

The markets were bullish, and tech startups saw a steady flow of funding as investors bet big on a new era of capital-efficient technologies and smart business operations. Even the labour market dynamics favoured employees. People resigned en masse for greener pastures (known as the Great Resignation), and hiring soared across the board as companies struggled to fill the talent gap. 

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But the scenario reversed when the Russian invasion of Ukraine started in February 2022. The impact of geopolitical uncertainty on the global economy, coupled with the ailing markets, rampant inflation and the fear of a long-lasting global recession, have capped the newfound exuberance across the startup land in India and abroad. 

For businesses big and small, the thesis has changed from ‘growth at any cost’ to turning a profit as investors’ fear of missing out (FOMO) has given way to orthodox belt-tightening. In brief, the year of ‘loud’ layoffs (done vociferously on all sorts of communication platforms, especially social media) has arrived, and by all accounts, the carnage is likely to continue well into 2023.

Indian Startup Layoffs: 18K Employees Fired & Counting

The past few months have been sobering for startup workers. More than 50 startups have laid off their employees in India, while big tech companies across the globe are issuing pink slips to thousands in arguably the worst year for the white-collar workforce in the technology domain.

As of December 8, 2022, a total of 17,989 employees were asked to leave by 52 Indian startups, including a host of unicorns such as BYJU’S, ChargeBee, Cars24, LEAD, Ola, Meesho, MPL, Innovaccer, Udaan, Unacademy and Vedantu, besides the listed foodtech Zomato.

Indian startups have laid off their people throughout February-December 2022. January was the lone exception, thanks to the aftermath of the startup funding bull run witnessed in the previous year. But as the capital inflow dried up, many startups found themselves on very short runways, and thousands were asked to leave.

It was not surprising as a reality check was long due after the FOMO-induced funding tsunami in 2021. What we are seeing now is a massive correction in the startup funding space, triggered by skyrocketing valuations and prevailing macroeconomic headwinds. 

In January this year, an Inc42 report on Indian tech startup funding estimated as much as a 24% correction in 2022. Between January 1 and November 29, 2022, startup funding in India amounted to $24 Bn, a 35% dip compared to the year-ago period.

However, not all startup sectors saw the same level of layoff bloodbath. In India, the worst offender is edtech, followed by consumer services and ecommerce startups. These three sectors collectively account for 15,424 layoffs, which means about nine out of every 10 Indian startup employees fired in 2022 worked in one of these sectors. Incidentally, these sectors are notorious cash-guzzlers, and many startups in these domains had to fire their employees to cut costs after startup funding dried up.

What Has Led To Massive Job Elimination

A layoff can be the eventual outcome of a variety of factors. But it is not a kind of development that unfolds at once. It may take months for employees to leave an organisation, even after a startup goes on record to announce a ballpark figure. 

On the other hand, not all layoffs are as pronounced as Twitter’s infamous downsizing. According to many HR experts, incidents of ‘quiet quitting’, forced resignations, unrealistic business targets and more stringent ‘performance’ parameters can be termed ‘passive layoffs’ that will continue to hurt livelihoods. 

For instance, several media reports have critiqued how tech giant Google and its parent Alphabet are about to do away with 10K ‘poor performers’. The ‘performance’ tag can not only impact severance packages but also affect the career growth of the people laid off.

More importantly, when tech (and other) companies across the spectrum think that reducing headcount is the sole remedy for reducing cash burn during any downturn, it is bound to impact the ‘trust’ factor and professional ethics. 

How justified are Indian startups to jump on the layoff bandwagon amid a funding winter and in the wake of an economic recession? A close look at the industry numbers is needed to analyse the causality of the job loss scenario.

Restructuring, Capital Crunch Primary Reasons For Layoffs

According to Inc42’s Indian Startup Layoff Tracker, which monitors startup layoffs across the country, 42.3% of the startups laid off their employees citing organisational restructuring such as M&A-related redundancies. 

For instance, BYJU’S cited duplication of roles and the resulting restructuring as the primary reason for firing 2,500 employees. The edtech unicorn was busy acquiring companies last year, picking up coding-focused edtech WhiteHat Jr, test-prep coaching centre chain Aakash and several others for a combined total of $2.3 Bn.

The company also said that it would be consolidating all of its business under one entity, which may have been the primary cause of the redundancies.

Going by the available data, only about one-third of the laid-off employees lost their jobs due to cost-cutting. This number ought to be much higher, but the current analysis only considers the official reasons for layoffs provided by the startups.

Financial constraints and adverse economic conditions (read lack of external funding and revenue dip) added another 11% of employees to the layoff list. Overall, the capital crunch was the most-cited reason for maximum layoffs (46% of employees) across Indian startups in 2022.

Late Stage Startups Laid Off Most Employees

Late stage startups accounted for more than two-thirds of the startup layoffs in 2022.

The layoff percentage amply reflects the state of late stage startup funding. Compared to 2021, late stage funding was down by 55% in 2022 ($31.99 Bn in 2021 against $14.19 Bn as of November 29, 2022) and saw a 97% YoY slump in July 2022.

According to Inc42 data, late stage startups fired 17% of their employees in a typical layoff in 2022, compared to 28% by growth stage companies and a whopping 54% by early stage startups. But given the average headcount of late stage companies, layoffs involving 17% of the employees can be much higher than the 54% laid off by early stage businesses, as the latter employs only a fraction of their late-stage counterparts.

Edtech, Consumer Services And Ecommerce Are The Worst Offenders

Among the 10 startup segments in India that saw at least one layoff in 2022, edtech, consumer services and ecommerce fired the maximum number of employees.

Of the total 17,989 employees let go in the year of the big layoffs, 85.7% worked in one of these three sectors, which actively reduced the headcount. Interestingly, edtech in India has the highest number of unicorns.

But industry leaders like BYJU’S, Unacademy and Vedantu, and key players like Toppr and WhiteHat Jr, fired people without much warning. Worse still, despite being cash-guzzlers, very few startups in the edtech space have become profitable. In fact, out of India’s 107 unicorns, only about a third is profitable, while the rest is burning cash at a frenetic pace without hitting the profit button.

For Indian edtech startups, 2022 should be an eminently forgettable year. As brick-and-mortar educational institutions and coaching classes started operating after widespread vaccination and the waning of the pandemic, edtech companies in the K-12 and test prep segments are facing a litmus test. 

Despite their dizzying valuations, they stand the risk of going under unless their offerings are reinvented in sync with the new world. The writing is on the wall, as five of the eight startups that went out of business in 2022 were edtech companies, accounting for 62.5% of the shutdowns.

The Worst Spate Of Layoffs Since Covid-19

During the first few months of the 2020 lockdowns, there was a bloodbath as Indian startups laid off nearly 8,200 employees between April and June, according to Inc42 data. 

Most of the B2C startups, including unicorns such as Ola, Zomato, Swiggy, BookMyShow, MakeMyTrip, Livspace, BharatPe, Lendingkart and many more, laid off thousands to survive the supply chain interruptions that brought businesses to a standstill for months together.

But the seemingly apocalyptic year also triggered unprecedented funding in 2021. A handful of consumer-facing segments, including ecommerce, consumer services, edtech and fintech, leveraged digital technologies to cater to the public demand for value, convenience and safety. Understandably, all of them attracted billions of dollars and mind-boggling valuations while growing at a breakneck speed to capture market share.

Fast forward to 2022, and the numbers are more depressing than they had been two years ago. Indian startups have laid off twice as many employees this time, around 1,760 employees every month. What’s more, the funding winter ($24 Bn in 2022 compared to $42 Bn in the previous year) has seen no respite due to overcautious investor sentiment.

The message out there is loud and clear. In the wake of global recession fears that may last for years (think of the dot-com bubble or the 2008 global meltdown), consumers and investors will weed out startups that fail to remain viable in a tech-driven world and a bruising economy. Layoffs and hiring freeze will continue until these companies find the sweet spot, selling more, spending less and attracting new capital. 

Tech Layoffs Soar Globally; How It Affects The Indian Workforce

Indian startups have laid off thousands of employees, but these layoffs pale compared to what is happening globally at some of the largest tech companies.

Twitter is a case in point. As Tesla and SpaceX founder Elon Musk acquired the microblogging site after a well-documented saga stretching back to April this year, he fired around 3,700 employees across the globe. These impacted 180 employees in India, and the team strength shrank from about 230 to a few dozen people.

Days after the Twitter bloodbath, Meta announced the single largest round of tech layoffs in 2022. In a company-wide headcount cutting, the Facebook, WhatsApp and Instagram parent downsized its employee base by 13%, and more than 11,000 were asked to leave.

Incidentally, Meta’s layoffs in 2022 have not impacted its 400-strong India team.

Amazon, too, followed suit, and media reports suggest that the ecommerce giant may fire as many as 10,000 employees globally, with hundreds of Indian workers in the possible line of fire. The ecommerce major has also shut down multiple business verticals in India.

The company is currently embroiled in a tussle with India’s labour ministry over the said layoffs and maintains that it has not yet fired a single person in India. Inc42 sources suggest that Amazon has asked employees from its defunct businesses to join other verticals or hand in their papers.

But all may not be gloom and doom in the ecommerce space. Ecommerce major Flipkart or India’s burgeoning D2C segment has not taken the layoff route yet to protect growth and profitability. 

Google and its parent Alphabet have also joined the layoff bandwagon and reportedly plan to let go of 10,000 employees worldwide, which may impact its Indian workforce.

Besides Big Tech, networking major Cisco has fired more than 4,150 employees or about 5% of its global workforce. According to media reports, Cisco’s layoffs will also impact hundreds of employees in India.

In all, tech layoffs in 2022 have seen 1,35,000 employees impacted, much worse than the Dot Com bubble of the early 2000s, which led to 120,000 people losing their jobs.

What’s On The Cards In 2023

If the timings of major layoffs throughout 2022 are analysed, a couple of insights will emerge. To begin with, most of the sacking happened towards the end of 2022, and experts speaking to Inc42 indicated a fresh round of layoffs beginning in 2023. For instance, while Meta, Amazon and Twitter announced layoffs in November 2022, Google and other tech leaders may start laying people off from January 2023.

Closer home, the likes of BYJU’S, Unacademy, Vedantu and others have been downsizing for most of the year. But the layoffs intensified from October onwards. This is backed by the fact that 16 startup layoffs happened since October 1, impacting 5,488 employees or 30% of total employees impacted by this year’s layoffs.

There is also a consensus that companies operating in the edtech, ecommerce, social media and consumer services space will be most impacted.

Another interesting thing that has emerged from these conversations is the contagiousness of layoffs within the tech industry. According to Stanford professor Jeffrey Pfeffer, companies may just be laying people off as an imitation of other companies – a snowball effect.

But that is just one part of it.

Asked about other critical triggers, HR experts suggest that these sectors are now maturing, and companies are looking to lift their performance over the next few quarters in the run-up to public listings. 

Furthermore, the funding crunch in 2022 has prompted a rise in mergers and acquisitions. As M&A deals grow across the segments most affected by the funding freeze, more people will lose their jobs due to redundancy.

Simply put, startups in capital-intensive sectors (ecommerce, edtech and consumer services) or those in low-monetisation segments like fintech need to rethink their fundamentals before it becomes business as usual and hiring returns to normalcy.

Another indication that the layoffs may continue well into 2023 is the current situation in the country’s IT/ITeS sector. According to media reports, IT giants Infosys, TCS, HCL and others have paused hiring since October 2022, let go of campus recruits and are looking to weed out non-performers in the coming months.

As we are aware, the impact of any macroeconomic shift cascades down from Big Tech to IT majors and finally to startups. It is much like the liquidity crunch that first hits the public equity market, while the private equity market feels the squeeze a few months later.

The hiring slowdown in the IT/ITes sector has similarly cascaded to the startup ecosystem. As IT/ITes companies put the brakes on hiring, so did the startups. According to the Monster Employment Index and RazorpayX Payroll report, hiring in the IT/ITes and startup sectors was down by 19% and 61% YoY, respectively.

The impact of Big Tech layoffs and IT/ITes majors freezing hiring can encourage startups to lay off more employees, as validated by Pfeffer’s ‘layoff contagiousness’ theory.

The Bottom Line

Time and again, stakeholders have worried about startup layoffs and their long-term impact on the job market. It is all the more critical now as the startup ecosystem has emerged as a major job creator. According to government statistics presented in Parliament in July 2022, Indian startups employed 7.98 Lakh employees.

Given the rising expectations from the startup sector, can we look forward to a quick recovery?

Of course, much of it depends on startup investors and how eager they are to loosen the purse string. There is no shortage of dry powder now as local and global VCs have already announced India-specific funds worth $16 Bn in 2022.

But despite the capital at their disposal, investors are likely to proceed with caution. They are also urging portfolio companies to reduce burn rates and get on to the profitability path. This means startups must slash all unnecessary expenses, including a bloated employee base, for a considerable period.

In brief, there is a path to recovery, but there are no clear timelines. It may take a quarter to another year before the funding winter is finally over. Then again, only the startups with the strongest fundamentals and adaptability, strategic mindset and resourcefulness will survive this downturn.

But all said and done, hundreds of thousands of employees have lost their jobs in 2022, and there may not be any immediate respite going forward.

[Edited By Sanghamitra Mandal]

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Note: The layoff data is updated till December 8, 2022. The funding data is updated till November 29, 2022.

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