Hardeep Singh
5,600! That is the total number of people laid off from Indian startups in the previous five months. From the educational technology company Vedantu to the social commerce group Meesho. Work cutbacks have been ruthless.
However, why is this happening now?
We were constantly stamping new unicorns (a billion-dollar firm) only last year. In reality, 42 new unicorns were born in 2021. A first! Furthermore, the mindset has shifted seemingly out of nowhere.
What was the situation?
Quite a few things, in fact. To begin with, national banks have been syphoning capital in an attempt to establish economies. Economies were devastated by the epidemic. During the preceding years, a fraction of this money helped people get by. Regardless, the great bulk of this capital advanced into the financial ecosystem. Also, when financial investors began looking for new opportunities throughout the world, they discovered a promising one in India, such as the growing Indian startup ecosystem.
These people channelled a part of these funds to VCs or Venture Capitalists (cash directors with a high-risk appetite), who invested this money in new enterprises that had the potential to grow rapidly. As a result, the Indian startup ecosystem became an unnamed receiver.
To give you an example, VC firms poured $38.5 billion into Indian new enterprises in 2021 – 3.8 times what they did in 2020! Furthermore, how did new businesses manage all of that money? Obviously, it was spent! They accelerated everything — advertising, negotiations, technology, and so forth. They wanted clients quickly and were willing to spend a lot of money to get them. In any case, nothing can escape the gravitational force, can it? Furthermore, the tide began to turn in 2022.
First and foremost, there was the war in Ukraine. Then there was a slow rise in oil and gas prices. There were also issues with the inventory network. As a result, there was a surge in global expansion. Fearing uncontrollable expenses, national banks opted to repair a fraction of the damage. They tampered with the cash supply in the hope that it would help to limit expenses. And, while it’s tough to determine whether this will actually help with checking expansion, there have been a few possibly bad outcomes.
With capital in short supply, financial backers have had to rethink their requirements. Fast returns are no longer an issue. Wealth protection it is. Furthermore, most investors have lost their lustre. They are fighting to raise fresh funds from individuals. Furthermore, by the same token, their enterprises aren’t performing particularly well.
Tiger Global’s tech portfolio suffered losses of up to $17 billion, while Softbank reported losses of up to $13 billion.
Entrepreneurs who were squandering wealth are now being forced to decrease expenditures quickly. Furthermore, this should explain the layoffs, the general pessimism surrounding new enterprises, and the fragility surrounding their future.
Great entrepreneurs begin as fantastic storytellers. They can spin the most persuasive tale and convince even the most reticent Venture Capitalists to put money up. In any event, this assessment is only partially obvious. Of course, VCs appreciate outstanding narrators. However, kids like a specific type of tale in which you tell them “everything is possible for you.”
You are now at a ride-sharing stage. You may be a financial service company tomorrow. You are now an online wallet. You may be a bank tomorrow. You are now a company with yearly revenue of less than $1 million. You may be a unicorn tomorrow.
These are the stories that venture capitalists need to hear. It’s the major method their strategy works. Regardless of whether you’re a firm making 100 Cr in earnings with a 10 Cr PAT (profit after tax), the business isn’t appealing to a VC until you can demonstrate that a 1000 Cr income run-rate is within striking reach. You must sell this account, regardless of whether you believe in it.
Furthermore, if you’re a businessperson who would like to be grounded and reasonable, you’ll make some extreme recollections asking VC investment. You’ll almost certainly need to bootstrap your way to the top or find a different type of financial supporter – not the typical funding type.
As a result, a circumstance is conceived. Most businesspeople see that this really strong style isn’t working. The phrase “fail fast learn fast” makes for a good guard sticker, but directing a depleting company into “life afterwards” is an onerous task. The media probe, client concerns, internal C-Suite mutiny, and rising financial backer pressure – all of this may cripple you.
Furthermore, business people are not completely unaware of this fact. Regardless, they are well aware of this. What is the major issue? “Bringing a stick to a gunfight” will not accurately further increase their outcomes. In a crowded society, being the lone revolutionary and bootstrapping your way to the top is difficult. So they do the most important thing they can. Just comply with this act. They raise millions of dollars despite the fact that the market opportunity may not exist. They provide so much comprehending that it may merely be completely too whimsical.
Nothing else explains how a company may spend 100 crores in less than a year without exhibiting any meaningful progress in business needs. Aside from the fact that this is the way you play this game. It is the primary way to play this game.
The large layoffs, terminations, liquidation procedures, and public fallout are not distortions. They are highlights, the product of a well-planned strategy. So, for those wondering if the celebration is coming to an end, the answer is no. It’s simply a temporary reprieve. When the residue settles and survivors emerge, everyone will proceed to cycle 2. There will be more unicorns, business visionaries, money spent, and capital than at any other period in recent memory.
