Promise Not

The much-touted start-up scene is cracking up. Is the boom over then? No, say experts. It’s necessary course-correction.
Promise Not
Time To Ponder
A snap of the reception area at the HQ of Flipkart in Bangalore
Photograph by Getty Images
Promise Not
outlookindia.com
2016-09-26T15:57:15+0530

A few months ago, a head-hunter in Bangalore captured the buzz that start-ups had created in the job market by drawing a parallel to the BPO—or outsourcing—boom of the early to mid 2000’s. “By May of the year, we used to make our bonuses,” he reminisced. “Last year was also a year like that. This year, I’m not sure.”

It wasn’t that start-ups were hiring in sheer numbers as other major sectors a year ago. Rather, it was the flutter they caused, offering hefty salary hikes, employee stock options and generally the pace at which things happened. A lot of that, it appears, has now changed.

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To be sure, start-up activity is still int­ense, and venture capitalists are writing cheques and people are indeed getting hired. But, by many accounts, there’s a good dose of prudence in this. “The free money is over,” is how one observer described the scenario.

In recent months, dead pool lists are in the news, as start-up biggies like Flipkart, Snapdeal and Ola find themselves in trouble and wrestle with costs.

The funding crunch that set in, in early 2016, showed up much of the distress that lay underneath the ‘exuberance’ in the start-up world, especially e-commerce and food start-ups. Reports of lay-offs are heard. This year, the Indian Institutes of Technology barred around 30 start-ups from campus placements because they either abruptly rescinded on offers or, as the IITs felt, were unprofessional in their claims about fancy salaries or outlandish hiring plans. The latter part, it’s suspected, may have to do with getting an early slot in the placement process along with well-established firms and it hasn’t gone down well with IITs. By one account, close to 200 students from across 10 IITs, who were given offers by start-ups in the last placements season, were affected because of delayed joining dates or firms simply going back on their offers.

“Our question is that if your company faces problems, which is quite natural in any industry, isn’t it a simple courtesy to keep us in the loop if you are revoking offers or delaying joining dates when you are recruiting through our placement cells officially. Not one of these 30 companies did that,” says Kaustubha Mohanty, convenor of the All IITs Placement Committee, a panel which coordinates among all the IITs.

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Commentators have opined that IITs shouldn’t get so protective but the counter-argument is that placements are anyway managed by students, who decide which companies should be invited. “What we are trying to do now is cross-checking some of these start-ups before allowing them entry,” says Mohanty. “It has so happened that this year the issues have been related to start-ups. It doesn’t mean that it’s the same way every year or that all start-ups are this way,” he says.

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PM Modi with entrepreneurs during the launch of ‘Start-up India’ action plan in Delhi

Photograph by Tribhuvan Tiwari

About a year ago, India’s start-up community was placed third largest in the world, with over 4,000 start-ups, thanks to frenetic activity that buzzed with talk of valuations and, particularly in the e-commerce space, business models that have had an equal share of sceptics and advocates. In recent months, dead pool lists (start-ups that have folded up) have been in the news while the poster boys of the boom, like Flipkart, Snapdeal, Zomato and Ola have been troubled by valuation markdowns, organisational restructuring or speculation of layoffs as they wrestled with costs. “Did something go terribly wrong at the confluence of young start-up founders, mega-round capital and proven business ideas?,” asked investor Haresh Chawla in an opinion piece. The key thing, he wrote, was to learn from last cycle’s mistakes.

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Grofers, a mobile platform connecting shoppers to local grocery stores, apologised to the employees it was forced to let go, as well as its campus hires whose offers it couldn’t honour, in an online post in June. “In the past couple of months, we have been making some necessary strategic changes within the company. The changes we have made will, in our opinion, benefit our customers in the long term,” said the start-up whose investors include Softbank and Tiger Global.

The signals from start-ups this year have made people wary, say industry watchers. “In fact, if you go to say, Naukri.com or LinkedIn, you will find 500-odd people from the bigger start-ups looking for jobs. That’s one part of it,” says Kris Lakshmikanth, who runs executive search firm, The Head Hunters. “Today, if I am a person working in a reputed company from the established sectors, I will think three times before joining a start-up. Last year this time, the same people would jump at an offer. Today, that is not happening.” The ones who want to move back into these traditional sectors are willing to take salary cuts of 30 to 40 per cent, he says. Some of the anxiety gripping mid- to senior-level managers, as many explain, probably also have to do with the ‘DNA of working for a large company’, which, of course, means the stability they’ve come to expect, besides the fact that the job profile at a start-up often requires dealing with constraints on a daily basis.

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Karthik Vaidyanathan, founder of Momoe, a Bangalore-based mobile payments technology start-up which was acquired by ShopClues recently, thinks a few aberrations have been blown out of proportion. “Yes, start-ups really started paying good salaries and there was a time when talent was short and people were moving across start-ups or jumping in because the role and the pay were both good.” He reckons salaries will continue to be good because, otherwise, start-ups won’t attract talent. “But the number of people they are going to get will not be at the rampant pace at which it happened earlier. That pace was mindless,” he says.

There’s a positive side to this, as Karthik sees it. “In a way, it is good as it’s only people who are brave enough to want to join a start-up now, whereas sometime back it was a fad.” Besides, he’s hopeful that things will look up, given the number of companies, and ideas, which have been getting funding both at a seed stage as well as bigger rounds of investment in recent months compared to early 2016.

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Indeed, compared to 2014, there have been more number of funding deals this year so far from seed funds right up to a Series D round (the alphabet signifies the number of VC funding rounds a company has received), though the numbers are lower compared to 2015. Data compiled by Tracxn, a firm that tracks start-up funding, indicates that angel funding of $41 million has gone into start-ups this year compared to $64 million in 2015 and $28 million in 2014.

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Gung-Ho

Start-up India hoardings in New Delhi

Photograph by Getty Images

Generally, head-hunters see in the start-up scene now a reflection of the business cycles that also impact larger sectors. Kamal Karanth, MD of HR firm Kelly Services, points out that many companies even in established sectors are currently not stress-free, though some have done well and continue to invest and hire. “I think the same is true for start-ups. Fundamentally, there was a bit of overhype in how they went about hiring, basically showing their own naivete. I think that’s what is correcting now,” he says. “Today, if there is a financial technology or healthcare start-up, people are still willing (to take up jobs). Selling the e-commerce company has become a challenge. Food companies, don’t even ask,” he adds. Overall, Karanth says, at least eight out of 10 start-ups are still hiring. “If you look at the start-up scene it’s not that they are sitting on a freeze and not hiring at all. Their model of hiring could be different.”

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The rate at which start-ups in India fail still doesn’t compare with the US, says Rishabh Lawania, founder of Xeler8, which tracks start-ups. His firm recently analysed about 997 start-ups that had failed—about 32 of these had received funding and the rest had been bootstrapped by founders—in India. Many of these entrepreneurs went back to starting new firms again, looking at more stable sectors, like software as a service or financial technologies. Others went on to take corporate jobs and a few went to work in other start-ups. The reasons why these early-stage start-ups failed were varied, he says. Either they tried to replicate a model that had been successful in the US, or tried to build innovative products which didn’t have a market yet.

“India is still much better when you look at the US market, where the failure rate is high. Probably, you can say that India isn’t still a developed start-up ecosystem...there are a lot more ideas that are going to come in and more folks are going to enter. This is too soon for people to already say that it’s done,” Lawania says. What is certain is that in the brittle Indian start-up scenario, things have changed, perhaps permanently. Many feel it is cyclical, that the glory days may be back. If that happens, it will be good for Indian entrepreneurs and thousands of B-School and IIT graduates who wants to stand up on their own and join the great Indian entrepreneurship bandwagon.

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