Show me the money: Start-ups hit the brakes on hiring, e-commerce worst hit

Start-ups have hired fewer people in 2017 so far, with the drop in recruitment in the past few months ranging from anywhere between 10 per cent to 50 per cent depending upon which recruitment agency you ask, reported The Economic Times on Monday. 

E-commerce, logistics, grocery and food delivery start-ups have been the worse hit, reported the financial daily. These segments have typically been home to large recruiters, according to recruitment firms, but a prolonged scarcity of funds has muted hiring activities, the report added. The only segment which seems to have come out relatively unscathed is financial technology, that too because of the government's push for a less-cash economy after the demonetisation drive. 

So, what's ailing the country's start-ups?

Winter has finally come

The funding spree in Indian start-ups slowed down in 2016, with large investments falling in number, a Nasscom-Zinnov report had revealed in October last year. Indian start-ups had attracted $4 billion (Rs 26,700 crore) in investments till October last year, an 18 per cent decrease from 2015's $4.9 billion figure. (Read more)

In Maharashtra alone, 2016 saw start-up funding go down by 22 per cent, according to a recent study by News Corp VCCEdge, the financial research platform of News Corp VCCircle. (Read more) 

The drop in recruitments might leave some scratching their heads though as Nasscom’s annual report on the sector had said that by the end of 2016, about 1,400 start-ups would have been "born", up eight to 10 per cent from 2015. According to the report, the number of tech start-ups was expected to grow by 10-12 per cent to about 4,750 in 2016.

Exits went up

Another thing that the Nasscom-Zinov report highlighted was that there was a 20-25 per cent increase in the number of exits by start-ups in 2016, till October at least, when compared to 2015. Start-ups that did not have a business model and, hence, could not grow or attract new funding, ended up shutting shop. Close to 1,000 start-ups shut shop in 2016, due to the funding freeze. 

From relatively big names like e-commerce marketplace AskMe and hyperlocal grocery delivery start-up Peppertap to lesser known names like on-demand laundry start-up Doormint and food start-up iTiffin, start-ups bit the dust across segments.

The big names took a hit

The year 2016 did not go well for India's largest home-grown e-commerce name, Flipkart. US-based mutual fund Morgan Stanley's marked down the value of Flipkart to $5.58 billion in November last year. The firm marked down the value of Flipkart for the sixth consecutive time, lowering the value of its shareholding by 38 per cent on a quarter on quarter basis. The markdown came even as Flipkart was struggling to raise funds at a valuation higher than or equal to $15.2 billion. Flipkart had enjoyed a peak valuation of $15.2 billion, making it among the top valued start-ups in the world. (Read more)

Flipkart wasn't alone in its troubles though. As explained in this Business Standard article: "The rise and fall of Nikesh Arora at SoftBank, in some sense, symbolises how the investor sentiment has changed with Indian start-ups: moving from a period of exuberance to one of extreme caution within two years." 

The "extreme caution" might have been warranted as, according to reports from earlier this month, Japan's SoftBank Corp has booked an investment loss of 39.28 billion yen ($350 million) on its investments in India, including those in cab-hailing firm Ola and e-commerce company Snapdeal.

In the earning statement for nine months ended December, SoftBank wrote off 39.28 billion yen in the value of shares in its Indian investments, which include Ola and Snapdeal. As of July last year, Snapdeal had raised $2.1 billion from investors such as Alibaba, SoftBank, Foxconn, eBay, Nexus Venture Partners and Kalaari Capital, among others. (Read more)