Homegrown social platform ShareChat, backed by Google, has laid off 20 per cent of its employees as Indian start-ups take recourse to retrenchments to manage a capital crunch caused by rising interest rates.
The recent round of layoffs has caught the attention of analysts who attribute the trend to companies lowering their hiring budgets and investors including private equity funds and venture capitalists turning cautious on funding loss-making companies with high employee overheads.
On Monday, ShareChat announced it had to let go of around 500 employees, just six months after raising $255 million.
Sharechat joins start-ups such as LEAD, Unacademy, Moglix and upGrad which has reduced employee strength in the first three weeks of the year. There are also reports of layoffs at Reliance Retail-backed Dunzo.
A ShareChat spokesperson in a statement explained why it had to trim its workforce — and a large part of this is applicable to other start-ups.
“As capital becomes expensive, companies need to prioritise their bets and invest in the highest impact projects only.
“Over the last six months, we have aggressively optimised costs across the board, including in marketing and infrastructure, among other cost heads, and ramped up our monetisation efforts,” the spokesperson said.
“The decision to reduce employee costs was taken after much deliberation and in light of the growing market consensus that investment sentiments will remain very cautious throughout this year.
“At the same time, we are doubling down on our efforts behind advertising and live-streaming revenues. With these changes, we aim to sail through the uncertain global economic conditions over 2023 and 2024 and come out stronger,” the spokesperson said.
Teamlease in its Employment Outlook Report for Q4FY23 estimates attrition rates at start-ups at 33 per cent.
Unicorns and soon to be unicorns are also suffering from substantial attrition rates of around 27 per cent and their hiring intent has diminished.
“There is definitely less capital available to companies. So, VCs are going to be incredibly selective about which companies get funded.
“While this might be a good thing for the VC firm, it is not so great for companies looking to raise capital right now. It will be difficult for start-ups that are not generating revenue to convince investors to put money behind them right now,” said Ajoy Thomas, vice-president and business head (retail, e-commerce, logistics and transportation), Teamlease Services.
Data compiled by Tracxn shows total funding in India has gone down 33 per cent in 2022 to $35.6 billion from $53.7 billion in 2021. The total number of deals has also gone down from 3,407 in 2021 to 2,578 in 2022.
However, other regions in the world are also grappling with the funds problem.
In China, start-up funding is down 54 per cent in 2022 from 2021, in the UK, 18.8 per cent, the US, 28.8 per cent and 24.6 per cent in the EU.
