Will 2023 be the year of layoffs?

The Indian startup sector has seen a continuation of job losses in 2023, with at least 11 tech startups laying off 1,400 employees in the first two weeks of the year. This accounts for 7.3% of the total layoffs by startups in 2022, as companies seek to cut costs in an environment of economic uncertainty. The layoffs come after a period of growth for the Indian startup sector in 2021, when companies raised more than $35 billion in venture capital funding. However, in 2022, venture capital funding dropped by 30% to around $24 billion, according to data from Venture Intelligence.

“Founders are acutely aware of the slowdown in the deal-making pace, and ‘extend the runway’ is the mantra they are adhering to tide over the next quarters. So, startups are going back to the drawing board to implement measures which will help them survive for the next 24 months,” said Bhargavi V., co-founder and partner at Java Capital.

Among the companies that have concluded layoffs in 2023, Google-backed Mohalla Tech, which operates the social media site ShareChat and the short video platform Moj, topped the list with around 600 layoffs. The company, based in Bengaluru, said that external macro factors impacted its costs and availability of capital, and trimmed its headcount by around 20% in its latest round of layoffs. In December, Mohalla Tech also shut down its fantasy sports vertical Jeet11, which employed nearly 115 people.

Another Google-backed startup that has fired employees in early 2023 is Dunzo, the quick commerce firm. The company sacked 3% of its employees, or nearly 90 people, as part of its restructuring. Employees from the product and supply chain were affected, with some senior developers and at least two directors of engineering among those laid off.

Edtech startups have also been affected by the return to physical classes post-pandemic, with continuing retrenchments in 2023. For example, edtech unicorn Lead School sacked nearly 60 employees earlier this month, after firing 100 employees in August. UpGrad-owned Harappa Education laid off 70 employees, or 35% of its 200-strong workforce, and further layoffs are likely, according to the human resources department. Relevel, owned by Unacademy, has also fired 40 employees, or around 20% of its workforce so far this year, as it pivots to a test product app called NextLevel.

“After an extended period of sunshine, Indian startups in 2022 faced a long, bitter and cold winter. As the funding squeeze sets in, startups undertook layoffs to survive and increase their runways,” said Bhaskar Majumdar, managing partner at Unicorn India Ventures.

Other startups that have laid off employees in January include Sequoia-backed Rebel Foods, SoftBank-backed Ola, B Capital-backed e-2wheeler maker Bounce, WestBridge Capital-backed voice automation startup Skit.ai, Tiger Global-backed industrial goods marketplace Moglix, and UpScalio, a Thrasio-style venture that finances e-commerce brands. The layoffs are expected to continue, as venture capitalists believe that companies might be facing tougher times. “2023 is gloomier than expected six months ago. Winter has truly set in,” warned Bhargavi of Java Capital. “We expect painful next 2-3 quarters that could see more layoffs and shutdowns with no adequate runways and bad unit economics,” she added.

The continuation of job losses in the Indian startup sector highlights the impact of economic uncertainty on the sector. Despite the growth in 2021, the decrease in venture capital funding in 2022 has put pressure on startups to cut costs and extend their runways. The trend is