As funding gets tough, start-ups face frugal times

One year ago, when Shilpa Mohan, 24, joined a hotels aggregator startup, she would often call a cab whenever she had to zip across Hyderabad for meetings. This was a small luxury she had gotten used to. So it came as a rude shock when she realised that, because the company's funding was lower than expected, she would have to let go off these "luxuries". She took a bus ride recently as she was worried that she may not be reimbursed for the cab.

Varun Parmar, 30, joined an e-commerce startup soon after he completed his MBA in 2013 from a Gurgaon-based institute. He was excited to be a part of the fast-moving, fast-changing internet industry. One year into his job, Parmar was informed that the company would shut down in India.

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Not the one to lose heart, he moved to another startup, this time a better-established brand. "I was excited to be a part of something so dynamic, but the lack of clarity bothered me." Parmar quit in about six months and moved to another startup. In a twist of fate, this one too folded up.

"Before it closed down, there was mass retrenchment, which, we were told, was done to make the business more efficient," says Parmar. But it soon became clear that the remaining employees would face the same fate. Parmar, who is relieved that the shutdown hasn't marked him out as a bad apple, is now looking for opportunities in multinationals and would not, at least for the next few years, consider working for a startup.

Mohan's anxiety and Parmar's angst is shared by a large number of people who had found in startups their dream jobs: good money, cool offices, cutting-edge technology, excitement… it was like Mount View had come to India.

Now that there are visible signs of strain in the ecosystem - some have gone belly up, others can't raise money, and hallowed names have seen their valuations wilt in the heat -, that dream could soon end.

Till a year ago, money was pouring into the sector as investors scrambled to get a piece of the action. Now, they want returns. Thus, the flow of money has turned into a trickle: Venture capital funding is down by 80 per cent this year as compared to last year, according to VCCircle. Growth is no longer the buzzword - profit is.

The corrections this has caused in startups have been sharp and sudden. Over 3,000 startup employees have been fired since September, according to VCCircle. The actual numbers could be higher, especially if one listens to those working at startups. Several have deferred their hiring plans. Some have decided not to give increments this year. Salaries come irregularly in a few cases. Many have wielded the axe on perks.

In October, Suparna Malhotra made her way to her manager's office in Gurgaon with a hint of nervousness. This was time for her mid-year performance review but soon she realised she had nothing to fear: she was offered both an increment and a promotion, though she had joined the e-commerce startup just six months back. Less than six months from that day, Malhotra was relieved of her duties and asked not to come to work from the next week.

The startup, Malhotra says, downsized because funds had simply dried up. "Vendor payments were halted and the mood within the organisation changed almost overnight." Malhotra has decided to take a few months to carefully consider her next move and not ricochet to another startup.

Malhotra's example shows how startups stocked themselves up with people, often at outlandish salaries, when money was easy - the exuberance was bound to end in pain when money became tight.

It can now be said with conviction that many of these startups were half-baked business ideas, and many fund managers were not as smart as they thought they were: they gave money without bothering to check if the startup had a proper management structure in place. It is now time to pay for those acts of omission.

Because these were immature businesses, little attention was paid to manpower planning. Many ended up creating shaky HR structures. "In an environment where pedigree or experience may not dictate one's level in the organisation, people need to be mature enough to report to a manager who is perhaps younger or less qualified," says KPMG Partner Sreedhar Prasad.

This was exactly the case with Kiran Singh whose peer at the Mumbai-based fashion startup where she worked was given a promotion and made the team-lead. "When you have a boss who cannot even formulate a proper sentence in English, how can you take him seriously?" asks Singh, a graduate in English literature from Delhi University.

The main reason why layoffs happened in large numbers at Housing.com, according to Rishi Sarkar, 25, who worked for the portal at its Mumbai office before he quit in 2015, was juvenile and haphazard management. Two of the co-founders had been having ego clashes and each began recruiting his friends and hostel buddies. An entire division was set up to accommodate friends and camps had formed in solidarity with different founders.

For Sarkar, who worked in sales, bosses ranged from a former banker with 20 years of experience, and, later, an IIT graduate from the batch of 2014. Flush with funds, the company created eight offices in Powai alone, and employee count rose upwards of 2,200.

When things began going downhill and massive streamlining loomed, Sarkar was asked to move to a branch in Navi Mumbai. He decided to leave and set out on his own. Housing.com declined comment on its hiring and restructuring processes.

In the last few years, startups had become a big draw at campuses. Many bright youngsters preferred startups over multinational corporations simply because of the excitement on offer: the thrill of building something from scratch. In addition, unlike bureaucratic and hierarchy-conscious multinationals, startups promised to be flat, informal and nimble.

In a startup, it was possible for a fresher to become a buddy with the promoter who, in many cases, would be the same age as him. This was too heady a temptation to resist.

At a leading MBA institute in Delhi, young students were ecstatic that the first company to arrive on campus last season was an adrenaline-pumped startup. "Almost 180 students out of our class of 220 sat for the placement. I felt lucky to be selected as one of the only 10 the company hired," says Pratap Sinha, 24.

Sinha was over the moon as he felt he was at the cusp of a bright career. His enthusiasm skyrocketed when the company called him in February to check if he could come on board straight after his examinations got over. A month later, while he was partying with his friends in Goa, the startup called him to inform that the job offer was on hold till October.

"It suddenly struck me that because I was selected by the first company, I was no longer eligible to seek assistance from the college's placement cell," he says.

Sinha had done his homework by speaking to his seniors who were already working with the startup; he now called them back to check on the health of the company. Many had quit and others were on their way out in a matter of weeks, he found out. "It feels like a cruel joke that those who were rejected by this company are in a better position than I am today."

While he is now in the process of applying to larger corporations, Sinha says that both the salaries and the job roles are nowhere close to what the startup was offering. "The compensation package is at least 25 per cent lower. I have an education loan on my head, so I might not be in a position to be picky with what is on offer now."

The trend is visible elsewhere too. For example, at Mumbai's SP Jain Institute of Management & Research, hiring by e-commerce companies came down 61 per cent in 2016.

Colleges and universities are picking up on these signals and have become cautious with the companies they invite for placements. In December last year, The Indian Express reported that IIT Bombay decided not to give startups the "opening slots" during its placement season, a marked change in trend from preceding years. A scuffle between Zomato and IIT Delhi broke out in July last year after the food startup offered stock options as a large part of the package - it was barred from the placement.

The freebies that one got while working at a startup could be overwhelming for a fresh graduate, as one of us discovered after joining a startup.

Food on the house, cool office activities, beer on Friday, frequent office parties and all-expenses-paid offsites formed the core of the work environment. And yet, there would be months, especially those close to the board meetings, when the mood would change and the management would get strict about targets and "wasting time".

But all this fun would resume once funding came in or the management got a thumbs-up from the investors.

This was the norm across the sector. Outlandish perks were used by the startups to make up for the chaotic work environment and long working hours.

With money drying up, these perks have become unsustainable. Where team lunches and drinks with managers were held almost every month, they have now come down to once a quarter or even once in six months.

An employee of a travel startup recalls how, recently, he was asked to pay for the company outing. "I had to spend Rs 20,000 out of my pocket, because in startup circles, bonding with the managers and even making sure your work is noticed depends on these 'fun' events," he says.

"Managers now have to think of other ways to build their teams and even look towards MNCs to see how they built a sustainable business model," says an HR professional.

The last few years had seen the emergence of a new carefree startup culture; by all evidence, it is just a matter of time before it mergers into the mainstream corporate way of life.

And yet, investors and seasoned entrepreneurs see this as an interim slowdown, one that will help startups with real merit gain in the longer run. "When funds come in fast, companies focus on rapid growth and do not bother too much about the burn rate. With the deals taking longer to close, it will force startups to rethink and focus on reducing their burn," says K Ganesh, serial entrepreneur and partner at Growthstory.in. Large staffs at higher-than-normal salaries have contributed significantly to this "burn rate", which is now being corrected.

While most people agree that IITians are cushioned against layoffs because they would easily find jobs elsewhere, the real challenge is for people like Malhotra and Parmar who have their entire careers ahead of them.
Some names have been changed on request

Nikita Puri contributed to this report

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