As startup layoffs accelerate due to fund crunch, Hiring likely to slow down in 2022

Amid concerns over an economic slowdown, Indian startup ecosystem has started to adjust to the evolving scenario. In the last few months, around 4,000 staffers have been laid off by some of the startups. This has created a sense of unease among stakeholders about what the future holds for the ecosystem in 2022. In a conversation with the BizzBuzz, Siva Prasad Nanduri, V-P & business head (IT Staffing) at TeamLease Digital, said that despite layoffs in some of the new age companies, hiring by startups remains robust as of now.

The country will see creation of lot of jobs this year from startups, he added. According to Nanduri, investors including private equity (PE) firms remain bullish on the investment front. TeamLease Digital has not seen any change on hiring intent from its customers so far. He, however, said that startups should have a clear roadmap to be profitable on an entity level for long-term sustainability. He also said that demand for digital talent remains high.

We see a number of layoffs of staffers announced by startups in recent months amid fears of an economic slowdown. Is this the beginning of a big trend or just one-off cases? What is your opinion on this matter?

I believe that many of the startups are only playing the valuation game. Given the valuation and fund raising done by startups, they are doing cost optimization now. A lot of cash burn is happening. Out of 100 unicorns we have, only 23 are profitable. Most of the unicorns are burning cash. Because of the huge cash burn, it is not a sustainable model for them to retain talent.

Is this trend likely to continue as startups may be staring at a funding dearth due to an inflationary environment?

Funding depends on multiple things. One of course depends on the interest rate environment. However, apart from external factors, internal factors like performance of startups are also going to have an impact.

How will the current layoffs in many startup affect hiring trend? Is hiring slowdown on the cards?

The answer is both yes and no. This can happen due to few of the industries. The talent that gets retrenched today, are already having jobs in other established industries. So, hiring for the overall industry is not likely to come down but, it is likely to happen in some segments like edtech.

Which are the segments within startups that are likely to continue hiring despite these fears of economic slowdown?

Software as a service (SaaS) startups and fintechs will definitely do well. With schools reopening and starting of offline classes, there may be some slowdown in edtech segment. However, it is very hard to predict that which industry will take a beating because we have seen within the industry, while some players are not growing, some others are also growing. For instance, in edtech sector, some players like Byju's are doing good. So, as long as unicorns change according to market need, they will grow. If they don't change according to market conditions, they will miss the opportunities that are available. So, it will be company specific. We are very optimistic on SaaS startups. We believe that this segment will take up in India.

Startup ecosystem has always been a consumer-driven market. The most profitable unicorns are a combination of both Business-to-Business (B2B) and Business-to-Consumer (B2C) companies. In the long-run, where ever startups are able to serve the addressable market, they will be successful.

We have seen wage cost going through the roof in startups. Due to high demand, attrition is also very high in technology industry. Will there be a fall in wage bills of companies?

Fixed cost has to be in control to create a sustainable company. Given the high demand for talent with supply not matching the demand, organisations are ready to pay higher wage bills because of attrition. We feel that wages will stabilize in the next two months once the demand matches the supply. Once that happens, the war on high wage bill will settle down in coming months. Also, the wage hikes will come down once demand-supply mismatch reduces.

Employment growth in India is largely dependent on healthy growth of startup ecosystem as the job growth is not high in established firms. Do you see hit to job creation by startups in coming months?

Today, if you see, most private investors are not shying away from investing in startup ecosystem and they are not really perturbed about the profitability at this point of time. Most of the investors are bullish at this point of time. The focus should definitely be to turn profitable. I think, investors and entrepreneurs will continue to invest in the startup ecosystem and what we foresee is that startup ecosystem will create a lot of jobs in the country. Those organisations, which are laying off, are probably not able to adjust with the market needs. As long as investors staying positive, job creation will happen. Till now, we have not heard about large investors moving away from startup ecosystem. I think, the sentiment is good and private equity players are staying invested. What we foresee is that startup ecosystem will create a lot of jobs but they should start learning to put a path towards profitability than burning a lot of cash.

How do you see the demand panning out for contractual workers in the current environment?

If you see, digital skills are still ruling the top of the charts. Today, consumption across sectors is pretty much high in digital skill front. The demand for digital skills is expected to continue even this year. Hiring sentiment has not come down for any of our customers at this point of time. Hiring continues to rise month-on-month basis. We don't see that trend reducing in the next few months. In Q1 (April-June) period, we don't foresee the job demand reducing in Indian geography. We really have to see how the US companies having base in India react in coming months.