We are already in the Q4 stage and some news disturbed us as well, we had always appreciated startup funding and congratulated them for becoming Unicorns.
But startups like Byjus, Vedanta, Meesho, Citymall, Lido, and many others had fired employees and the numbers are in the thousands (average).
These startups are well funded by leading investors like Sequoia Capital, Tiger Global, and Angel Investors. Now the question is why startups are under pressure.
We get the news about the funding, millions of dollars funding they receive from the investors but what happened to these startups, why are they taking the bold decision?
The latest data showed that the deals involving funding of $100 million and more are also higher this year as compared with last year.
About 33 companies raised funding of $100 million or more during January-April 2022, while the number was 29 during the same period last year, according to the Venture Intelligence data.
Sequoia Capital’s Note For Companies
In a 51-page note, leading venture capital firm Sequoia Capital recently told founders of its portfolio companies that the era of being rewarded for hypergrowth at any cost is quickly coming to an end with investors shifting towards companies that can demonstrate current profitability.
“Capital is becoming more expensive while the macro is becoming less certain, leading to investors de-prioritizing and paying up less for growth,” it said.
Also Read: How Many Startups Fail and Why?
Sequoia also said loose monetary policies globally in the past two years had led to negative interest rates, making fundraising effortless for growth companies and driving up valuations.
Now, with interest rates rising, money is no longer free, which can have massive implications for valuations and fundraising.
We are going to highlight a few reasons that might be responsible for layoffs.
- Tough Situation Post COVID-19
Aditya Narayan Mishra, chief executive of Ciel HR Services, a staffing agency said, “These layoffs are happening across businesses and segments.
It is due to aggressive hiring by some startups and a change of plans subsequently. Some companies are finding it hard to transition post-Covid-19.
” He further added that most ed-tech startups are building products exclusively online and have found it difficult to deploy talent as the world is now opening up.
- Moonlighting
Moonlighting is a situation when an employee works more than one job. This is practically harming the company’s output and results.
When an employee diverts their focus on two things, it is obvious their contribution will get divided. This indirectly impacts the company’s results.
- Overfunding
This is an underrated topic, people don’t much talk about it.
Having a great business idea is not only the thing to consider, you need to check how you’re going to utilize the funding for the company’s growth.
We had already covered an article on Startup Overfunding you will get an idea in detail. If you don’t have discipline and visionary management, overfunding kill your startup.
What’s Next
Layoffs in a startup are not new, but in the last few years we had observed these startups receive millions of funding to these startups and suddenly they start showing the same nature of layoffs.
That raises the question amongst entrepreneurs and investors, it is recommended that you should only increase the funding if you can pay back your investors on time.
If you’re raising the funding of 1 crore and after one year you can’t repay the amount with profit then in a normal situation companies start firing their employees to make the most profit and repay the invested amount of the investors.
In business, this is not a favorable step to run a business in the long term, companies should avoid these practices.
