More cost cuts at Indian startups as funding plummets; LazyPay, Kissht hit by Govt app ban

Also in this letter:
■ Mid-level IT employees will need to justify exorbitant salaries
■ Paytm says operating level profitability ‘sustainable’
■ Lenovo India to scale ‘Infra-as-a-Service’ offerings

Startups to cut costs further as funding crunch continues

Startups are contemplating further tough measures to cut costs as the next year 10-12 months look uncertain amid a funding crunch. Venture capitalists, including Tiger Global, have cautioned that deals will be relooked at from all perspectives, including pricing.

Fundraising plummets: Fundraising declined about 70% to $1.38 billion in January this year compared to the amount in the same month Ila’s t year, the number of deals also came down.

Only three funding deals of over $100 million were closed in January compared to 11 during the same time last year. There were 92 deals with lower than $50 million cheque size in January 2023 compared to 269 during the same month last year.

Focus on core biz: After layoffs, which have been aplenty in the past few months across companies , the focus will now be on core business for sustained growth.

SoftBank-backed unicorn ElasticRun, for example, is looking at reducing focus on the ‘feet-on-street teams’ for delivery of goods. Founders are working to show there is a path to profitability under the current model. Business plans are being redrawn as focus shifts from building large empires to wealth creation.

Will job cuts continue? Over 18,000 staffers across various startups lost jobs last year and the trend continued in January this year as thousands more were laid off. Hiring agencies and consulting firms indicate that job cuts may continue this year as more companies prune people costs.

Government ban impacts non-Chinese lending apps LazyPay, Kissht

Not just China-origin apps, a bunch of Indian lending apps too have been taken down, after the Centre banned 94 lending apps with foreign links.

Apps impacted? PayU’s buy-now-pay-later service LazyPay and Kissht are some of the apps which are not available to customers. Kissht, in which Chinese conglomerate Fosun owned more than 17% stake but has since divested to Singapore funds, says it is working to resolve the issue.

Quote, Unquote: A senior IT ministry official said some loan apps without Chinese links were also a part of the 230 banned apps.

“Due to unavoidable circumstances our website and app are currently unavailable via a few Internet Service Providers…Please be assured that we are doing everything to resolve the issue,” a spokesperson for PayU told ET.

While Kissht cofounder Ranvir Singh told ET, “We are reaching out to MeitY to resolve this as soon as possible as lakhs of our customers who avail our services are impacted. This will impact their ability to use credit for productive purposes”.

Background: Over the past few years, online lending platforms have come under the scanner of the government, law enforcement agencies and internet companies such as Google which hosts apps on its Play Store. Many grievances were reported about strong arm tactics of recovery agents. Most of these fall fall outside the regulatory purview is also a cause for concern.

Expensive mid-level IT staff face higher scrutiny as firms tighten belt

Mid-level executives hired at expensive salaries across IT companies have come under the lens as tech firms evaluate employee costs due after two years of unprecedented demand for talent.

The middle bulge: Last year, large IT services organisations hired a greater number of technology professionals with 5-12 years experience, referred to as the middle management layer, which comprise 70% of the work force, said Sunil Chemmankotil, CEO of TeamLease Digital. “This talent was hired at exorbitant salaries, resulting in the middle bulge. In most cases, they were hired at 50-60% higher than normal wages,” Chemmankotil said. “The middle layer hired at higher wages will definitely be scrutinised and be required to provide re- sults; if attrition occurs in this bucket, it will be replaced by normalised wages,” he said.

Also Read: Layoffs in 2023: these companies have announced job cuts amid economic downturn

Tech layoffs: As many as 200,000 employees have lost jobs since July 2022. The companies that handed out pink slips include Google, Microsoft, Meta and Amazon. On the domestic front, Tata Consultancy Services, Wipro and Tech Mahindra reported a slight dip in employee headcount.

Also Read: Layoffs in 2023: a list of Indian startups & tech companies that have cut jobs

Paytm says operating level profitability ‘sustainable’

Paytm’s parent entity One 97 Communications Ltd, which last week reported positive earnings before interest, taxes, depreciation, amortisation and employee stock option costs of Rs 31 crore for the quarter ended December 31, said on Monday that the operating level profitability was “sustainable”.

Quote unquote: “Our contribution margins a year ago used to be 31%, and we have improved it to 51%. Our indirect expenses as a percentage of revenue have gone down from 58% to 49%,” Paytm’s group chief financial officer Madhur Deora said during a post-earnings call with analysts on Monday.

By the numbers: The company’s operating revenue grew 42% year-on-year to Rs 2,062 crore, while net losses narrowed to Rs 392.1 crore in the third quarter.

Paytm’s reported operating profit improved by Rs 424 crore from the year-ago period, and margins improved to 2% of revenue from -27% a year ago, due to sustained improvement in contribution profit and strong operating leverage.

One 97 Communications’ shares ended 6.3% higher on the BSE at Rs 558 on Monday.

UPI Lite plans: Paytm plans to launch UPI Lite, a virtual wallet-based UPI payment method for transactions up to Rs 200 that can be made without the use of a UPI PIN, Deora said.

ETtech was the first to report on Monday that Paytm planned to roll out UPI Lite soon on its app.

“While India digital payments has grown quite a lot, it is still in very early days. We’re going to be launching UPI Lite soon, which allows multiple small-value UPI payments, which we believe will lead to adoption of digital payments,” Deora said.

Will scale ‘Infra-as-a-Service’ offerings: Lenovo India MD

Lenovo India plans to scale its offerings in the ‘Infrastructure as a Service’ space and transform itself from a hardware to a solutions-oriented company, its India managing director Shailendra Katyal told us.

TruScale: The company is offering these services under a new brand called TruScale where the consumer pays for whatever data or infrastructure is consumed instead of paying for the whole set-up.

Quote, unquote: “We are increasingly seeing people want IT or hardware also as a consumption model, and not necessarily as a thing that they have to pay upfront. So, if you wanted storage and server capacity, it is all on a subscription basis. We are seeing that happen with our hardware buying as well,” Katyal said.

PLI scheme: Lenovo India is also waiting for the second round of the government’s production-linked incentive (PLI) scheme for personal computers.

Other top stories by our reporters

Swiggy appoints three independent board directors: Food and grocery delivery startup Swiggy said that Delhivery CEO Sahil Barua, managing director of tractor maker TAFE, Mallika Srinivasan, and renowned chartered accountant Shailesh Haribhakti will join Swiggy’s board as independent directors. “We’re very excited about bringing on Mallika Srinivasan, Shailesh Haribhakti, and Sahil Barua to Swiggy’s board of directors,” said Sriharsha Majety – CEO and cofounder of Swiggy.

Dell to fire 6,650 employees: Dell Technologies Inc will eliminate about 6,650 jobs, or about 5% of its global workforce, hurt by falling demand for its personal computers, Bloomberg News reported. The company is experiencing market conditions that “continue to erode with an uncertain future,” a memo from co-chief operating officer Jeff Clarke to employees said, according to the report.

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