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Winter came, and it never left. At least, that’s what it seems like in the startup world, as 2023 has not been kind. The funding has dried up. It’s understandable, as with ever-growing fears of a recession, investors are watching every penny and every dollar. So, then, there’s the unfortunate consequence: layoffs. As money dwindles, people lose their jobs, and it’s happening worldwide.
Last year, big and small tech companies, private and public, fired more than 165,000 people. So, since the start of the year, everyone in the startup world was already bracing for a tough going, and it seemed things wouldn’t be so challenging. After all, the first and second quarters had shown big funding deals with companies such as Stripe and OpenAI. These two deals accounted for $16.5 billion, and one would think the rest of the world would follow, but it didn’t. Instead, these two deals alone accounted for 21% of global funding, totaling $76 billion. That’s a dramatic 53% drop from the first quarter of 2022.
It’s essential to process the numbers to see how this has affected the startup world. Fortunately, and in a bit of irony, the tech and startup world is so popular that there are tons of data, including a layoff tracker.
What we can learn from it is that 2023 has not been kind. So far, we’ve exceeded the numbers we saw last year, and we’re just halfway through, but there’s also something to be said about where those layoffs are coming from. So yes, startups have struggled in these first six months, but big tech has also taken a toll.
Ten companies account for almost 100,000 of the layoffs, including big names such as Google (with 10,000), Meta (with 21,000), and Microsoft (with 20,000). Even Stripe isn’t immune, as it has had to lay off 14% of its staff. Also, countless startups are on the list, topping out at 718 so far, with conservative guesses that it could increase to a thousand or more.
Funding had grown massively during 2021, relentlessly fueled by investors eager to break out of the stalemate during the pandemic. Still, all momentum eventually died out, and a key factor here is valuations. Unicorns were common, and these companies with massive valuations showed great promise.
Investors dove head first into this funding fever, but two years later, they noticed that most of the hype was just a thought, a fleeting promise with no real solid ground, and, as this article so eloquently puts it, startups must take part of the blame.
Now, investors are cautious. It’s not about what you can promise in the future but about what today’s numbers are saying, which, unfortunately, also translates to employees. Staff used to be, two years ago, meant for the greater future, a growth that would come. Now, it’s all about the people you need to fulfill your goals right now, so you grow to hire; you don’t hire to grow. Forget expansion if there’s no revenue.
What’s most fascinating to me is that one country, in particular, has felt this impact, having suffered much more layoffs than any other. We’ve spoken about the impact the United States has felt, but funding has had less of a slowdown in the US than in the rest of the world, including India. One of the fastest-growing nations in the world, when it comes to startups, India has struggled to get out of its funding winter and layoff seasons.
Byju was a promising startup that showed that education and technology could merge to provide a learning platform that served not only languages but also mathematics and general knowledge. It was a hit in India, where engineering students are plenty, and it had grown to a $22 billion valuation in October 2022.
One of its leading investors has dropped that number to a woeful $8.4 billion. That’s almost 40% less in under a year. Along with this massive downgrade, layoffs were inevitable. Byju has fired 4,000 employees, and it could keep going. Granted, the company found itself in hot waters with Indian authorities, and this didn’t help its reputation, but Byju isn’t the only one. Unacademy and Ola have fired over 1,400 employees, and the list continues.
India suffers from the same problems as any other market, such as the US, with the additional factor that big investors from the US are withholding their money for local companies. This means that the rounds have gotten smaller and fewer of them. Companies, therefore, are laying off people to keep operating. Plus, it means that valuations are taking a step back. For example, unicorns. India alone had more than 20 of them in 2022. Yet, halfway into the year, India has not created a new unicorn in 2023.
Not necessarily, but right now, it isn’t easy. There’s a widespread belief that the market has regulated itself, and valuations are more in line with what seems logical. The problem is that those hired during the 2021 heyday won’t be too happy, and there’s another part of good news. Not all of the market is shrinking. Some startup sectors are growing, even in these trying times.
Some companies with over $10 million in funding have increased their headcounts. Markets such as Security and Compliance have shown a positive headcount growth of more than 52%, followed by the trendy generative AI and Developer Tools. Conversely, customer support and marketing tech startups are lagging behind.
Numbers like these indicate what’s happening right now in the startup world. Funding has dried up, and investors and founders need to understand this. It means knowing that every promise you make must have a figure behind it and that, yes, unfortunately, every hire you make isn’t for hype, but for survival, in these trying times.
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