Winter is coming, warns Y Combinator; startups show solidarity in face of layoffs
Also in this letter:
Cars24 lays off 600 employees as startup layoffs continue
■ Crypto exchanges are also facing a drop in funding
■ MeitY data center framework ready for Cabinet approval
Plan for the worst, cut costs, extend track in 30 days, YC tells founders
Y Combinator warned founders of all its portfolio companies, telling them to prepare for the worst amid a noticeable slowdown in the funding market.
Without mincing words: The missive, sent on Wednesday, read: “The safe move is to plan for the worst. If the current situation is as bad as the last two economic downturns, the best way to prepare is to cut costs and extend your lead in the next 30 days. Your goal should be to reach Default Alive.”
Default Alive is a term coined by Y Combinator founder Paul Graham for startups that, based on current spending, growth rate, and available cash, can achieve profitability before they run out of money.
“If your plan is to raise funds over the next 6-12 months, you may be doing so at the height of the recession. Remember that your chances of success are extremely low even if your business is doing well We recommend modifying your plan,” YC said in the memo.
State of play: The rating follows a global crash in tech stocks, the effects of which are now also being felt in the private finance sector. In India, there has been a palpable slowdown in major funding rounds as founders are told by investors to conserve cash.
At the start of the pandemic in March 2020, Sequoia Capital, a periodic industry soothsayer, warned its portfolio companies that the outbreak could usher in a prolonged global economic downturn and fundamentally alter the business environment.
In an op-ed titled “Coronavirus: The Black Swan of 2020,” he said companies should consider cutting costs, revising sales forecasts and conserving cash.
A year later, in March 2021, Sequoia published a follow-up article advising startups to prepare for stronger economic growth in the second half of 2021. This also came as governments cut huge stimulus checks , leading to unprecedented liquidity and huge funding rounds.
But markets have tightened significantly in 2022. YC wrote in its note: “If you don’t have the track to reach ‘live default’ and your existing investors or new investors are willing to give you more money right now (even on the same terms as your last round), you should seriously consider taking it.
Layoffs planned in: A number of Indian startups that have laid off employees since the start of 2022 would do well to heed this advice. We reported on April 18 that more than 1,800 contract and full-time employees were laid off from Unacademy, Meesho, Trell, Lido Learning and Furlenco.
Edtech unicorn Vedantu had laid off 624 people this month, including 424 on Wednesday, and it’s still not the latest startup to announce job cuts. Which brings us to our next story.
Cars24 lays off 600 employees as startup layoffs continue
Used-car market Cars24 has laid off more than 600 employees, or about 6% of its 9,000 employees, according to people familiar with the matter.
The layoffs occurred across all departments and roles, the people added.
Fundraising six months ago:Cars24 closed a $400 million financing led by Alpha Wave Global in December. This included a debt component of $100 million. The company’s valuation jumped three times to $3.3 billion after the funding round.
The company, which is backed by SoftBank and Alpha Wave Global, joins a growing list of startups that have laid off employees to save money amid slowing funding.
Startups show solidarity: As layoffs hit the industry, the tight-knit startup community is rallying to defend themselves. When Vedantu laid off 424 employees on Wednesday, the founders, CXOs and HR teams of many other startups reached out to help laid-off staff find new jobs.
Who does what : Scaler, Filo, Classplus, PhysicsWallah, BrightChamps, Teachmint, ByteLearn and Mojocare are some of the companies that have offered to help.
- Scaler recruits in leadership, product, technology, business and sales roles, and recently hired at Lido Learning.
- The live instant tutoring app Filo, which is aggressively hiring this drill, has hired Lido and is in talks with some laid-off Unacademy employees.
“The startup ecosystem is a small world. We all know each other, we know the context that drives business decisions. There are situations where employees are laid off, but other companies know how these things work and are happy to help,” said Sajith Pai, director of Blume Ventures.
Crypto Exchanges Face Dip in Funding Amid Weak Exchanges, High Taxes, and Terra
Indian cryptocurrency exchanges are expected to face lower valuations, longer trading cycles and tough trading from venture capitalists due to lower trading volumes, discussions on more restrictive tax regulations and the impact of the Terra-Luna collapse on retail investors.
Market watchers say at least six deals, both investments and M&As, are stalled due to valuation mismatches between crypto platforms and investors.
A leading crypto platform, which recently announced a funding round, started reaching out to VCs in September 2021 when valuations were at their peak. Conversations dragged on until the company recently closed a smaller round at a lower valuation.
Trading activity, which accounts for the bulk of exchange revenue, will decline further when withholding tax (TDS) comes into effect on June 1, reducing profits or even causing losses for players with costs. higher.
Experts have said that even exchanges that have made deals at high valuations will struggle to meet forecast numbers.
Valuations of global crypto companies have been hammered. On Thursday, US cryptocurrency Coinbase was trading at $63.03, having lost more than 80% of its value since hitting a record high in November.
TWEET OF THE DAY
MeitY Data Center Framework Ready for Cabinet Approval
The Ministry of Information Technology, which plans to offer incentives worth up to Rs 15,000 crore under a National Data Center Policy, will soon submit it to Cabinet for approval, we senior government officials said.
The government is considering investments of up to Rs 3 lakh crore in the data center ecosystem over the next five years, according to a draft policy.
“This will be the biggest investment an incentive program has attracted so far. It even exceeds the semiconductor policy in terms of expected investment,” an official said.
Much of the Rs 15,000 crore corpus is likely to be handed out as capital investment incentives, sources said.
For example, the Department of Computing plans to offer a 4-6% incentive on investment if purchased components – such as servers, server trays, server housings and others – come from units of Indian manufacture.
An additional incentive of up to 3% will be given for the use of renewable energy, a second official said.
Closed deals ETtech
■ Warehouse robotics and automation company GreyOrange said it raised $110 million from Peter Thiel’s Mithril Capital and other existing and new investors, as well as separate debt funding from BlackRock.
■ Endurance Technologies bought the battery management system unit of energy technology start-up Ion Energy for $40 million in an all-cash deal. Endurance will buy 51% of Maxwell Energy Systems, a Mumbai-based subsidiary of Ion Energy, for $17.5 million initially, and the remaining 49% in phases over the next five years, he said. declared.
■ GeoIQ, a location-intelligence startup, secured $2.25 million in funding from Lenskart, an omnichannel eyewear retailer. Existing investors 9Unicorns and Ecosystem Ventures also participated in the round.
■ Cloud-based skills and certification platform QwikSkills raised Rs 3.85 crore in a funding round from Indian Angel Network (IAN) and others. The round was led by angel investors Manish Sinha and Naveen Gupta of IAN.
■ Delhi-based fashion retailer High Street Essentials, which owns women’s fashion brands FabAlley and Indya, raised Rs 40 crore in a mix of equity and debt financing from venture debt firm Stride Ventures.
Other Top Stories by our journalists
Uber increases fares and offers flexible payments for drivers: In a dovish note to its drivers, Uber raised fares by 10-15% in several cities to boost revenue amid rising fuel prices. It also offered them flexibility on payments and destination visibility.
Andreessen Horowitz launches $600 million gambling fund: Venture capital giant Andreessen Horowitz has launched a new $600 million gaming fund, according to a report from Techcrunch. Called Games Fund One, it is led by general partners Andrew Chen, Jon Lai and James Gwertzman.
Global Choices We Read
■ Can Elon Musk just walk away from Twitter? (WSJ)
■ Anti-misinformation panel falls victim (NYT)
■ Deutsche Bank among longest surveyed by US on WhatsApp usage (Bloomberg)
Today’s ETtech Morning Dispatch was hosted by Zaheer Merchant in Mumbai and Judy Franko in New Delhi. Graphics and illustrations by Rahul Awasthi.