Total funding is not less than this year, but why companies are laying off employees

Although startups are turning to layoffs As they cite cost cutting as the main reason, the data shows that the total funding of these new generation companies during the January-April period of this year is almost the same as last year and even the number of companies that raised more than $100 million is also higher than last year . However, experts say startups are laying off staff to preserve cash to support profitability as big-ticket funding operations are now slowing due to the current volatile market conditions.

About $12 billion was invested in growth and early-stage companies between January and April this year, compared to $11.2 billion injected during the corresponding period last year, according to data obtained from Venture Intelligence.

Interestingly, the data showed that deals involving $100 million and more in financing are also higher this year than last year. About 33 companies raised $100 million or more in funding during the January-April 2022 period, while the number was 29 during the same period last year, according to Venture Intelligence data.

Famous Startups In India Including Unacademy, Cars24 and Vedanta, more than 5,000 employees have left India this year. Ola laid off about 2,100 employees during the January-March period of this year, followed by Unacademy (over 600), Cars24 (600) and Vedantu (400).

Apart from this, e-commerce company Meesho has laid off 150 employees, furniture rental company Furlenco 200, influencer-led social commerce startup Trell 300, and OkCredit has left 40 employees.

Ajay Malik, Managing Director and Head (Investment Banking Advisory) at RBSA Advisors said: “Given the current volatile market conditions, startups aim to conserve cash and boost profitability. Startup layoffs may have accelerated due to capital crunch fears.”

According to the latest data of Venture Intelligence, 33 Indian startups raised about $7.34 billion during January-April 2022. However, Indian Tech Unicorn 2021 report showed that in 2021, only 11 companies raised about $7.16 billion through offers the public. “One97 Communication (Paytm) Raised India’s Largest Ever Company underwriting With an issue size of Rs.18,300 crore (about $2.46 billion). “

According to the data, 29 deals worth $100 million or more during January-April 2021 covered about 71 percent of total startup investment, while 33 such deals this year accounted for just 60 percent of total funding.

Owner from RBSA said that overall, this year saw roughly the same funding during January-April as last year, but the amount involved in the best deals is lower compared to last year. “Low valuations, slowing funding rounds and shrinking deal volumes are adding to the problems for startups,” he said, adding that the bleak market environment may slow funding in the near future.

Recently, in a letter to employees, Unacademy co-founder and CEO Gaurav Munjal said, “We must learn to operate within constraints and focus on profitability at any cost. (Finance) Winter is here. We must change our ways. We will focus on organic growth channels instead of that “.

He added that some people expect winter funding to last 24 months. “We must adapt. This is a test for all of us. We must learn to operate within constraints. We must focus on profitability at all costs…We must endure the winter.”

Sequoia Capital corporate note

In a 51-page note, leading venture capital firm Sequoia Capital recently told the founders of its portfolio companies that the era of rewarding excessive growth at any costs is fast approaching its end as investors turn toward companies that can demonstrate current profitability.

“Capital is getting more expensive while the overall economy is getting less certain, which is leading to investors canceling priority and paying less for growth,” she said.

Sequoia also said that loose monetary policies globally in the past two years have resulted in negative interest rates, making it easier for growth companies to raise money and increasing valuations. Now, with interest rates rising, money is no longer free, which could have huge repercussions for valuations and fundraising.

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