The Indian startup ecosystem continues to face turbulent times as funding winter persists, leading to significant layoffs across the country. Since 2022, approximately 94 startups have resorted to reducing their workforce, resulting in the layoff of around 25,805 employees. This number may actually be higher, as many startups are now resorting to silent layoffs, keeping them under the radar.
The layoffs, which began in early 2022, have intensified as more new-age tech companies opt for cost-cutting measures to navigate through the funding drought. Their objective is to reduce expenses and extend their financial runway to prioritize profitability in the face of funding challenges.
According to Moneycontrol’s layoff tracker, startups in India have been actively downsizing to sustain their operations. The number of employees affected by layoffs has reached a concerning milestone, with close to 25,000 individuals losing their jobs. However, this figure may continue to rise, as many startups are considering further cost-cutting measures due to the absence of anticipated funding rounds.
Anand Lunia, the founding partner at India Quotient, a Mumbai-based venture capital fund, expressed concern about the ongoing situation. He stated, “If 2022 was a bad year, this is going to be much worse. We are already witnessing funding fall down, and I expect that there will be further correction.”
The current layoffs in the startup sector are particularly alarming due to the relatively smaller employee base in these companies compared to IT services firms. The reabsorption of laid-off employees could become a challenge, especially considering the current reduced number of job openings compared to previous years.
Anshuman Das, co-founder and CEO of Careernet and LONGHOUSE Consulting, predicts that more startups will resort to layoffs as cost-cutting becomes a priority. He anticipates that the layoff count could potentially reach anywhere between 40,000 to 50,000 by the end of the year. In 2023 alone, approximately 46 startups have already let go of around 7,500 employees.
While last year saw 50 startups laying off employees, the trend has continued into 2023, with 46 startups already joining the list in just six months. However, in terms of the absolute number of employees affected, 2022 was more severe, with an average of nearly 9,000 job losses in the first six months, which was 20 percent higher than the current year.
The wave of layoffs is affecting not only large companies but also smaller startups that are now facing tough decisions. Previously, it was primarily late-stage companies with significant workforces that conducted layoffs. However, the current situation has shifted, and now smaller companies are also compelled to make difficult choices, leading to a larger number of companies with a smaller talent pool.
Even the world’s most valued edtech startup, Byju’s, has been forced to lay off over 1,000 permanent staff across various departments. This move has pushed its total layoff count to over 5,000 since the beginning of 2022. The edtech sector as a whole has been severely impacted by the funding drought, as demand for online classes has decreased following the pandemic. Among the top six startups, four belong to the edtech sector.
The funding crunch is a significant contributor to the prevailing layoffs. Funding for Indian edtech companies witnessed a sharp decline of 46 percent in 2022, falling to $2.86 billion from $5.32 billion in the previous year. In 2023, it further dropped to $889 million. While cost-cutting measures have played a role in these layoffs, some employees have also lost their jobs due to corporate governance lapses by their employers.
Furthermore, overall funding for Indian startups has plunged to approximately one-fifth of the previous year’s amount in the first five months of 2023. The absence of global investment firms and the impact of individual founders’ behaviors have negatively affected investor sentiments, leading to a downturn in investment activities.
An optimistic perspective suggests that this challenging phase will ultimately make the startup ecosystem stronger. Both investors and founders must undergo a mental reset, understanding that their focus should be on building sustainable companies rather than solely attracting funding rounds. This reset is already in progress, and as the industry evolves, it will pave the way for a more resilient and thriving startup landscape in India.
