Startup investors push founders to focus on stronger unit economics amid funding slowdown

In the last 2-3 weeks, many startups have deferred hiring mandates to the next quarter, as they head into a funding winter and want to go slow on expansion and step cautiously to conserve cash, said executive search firms and startup founders.

The number of open positions is going down and companies are cutting down on counteroffers that were used to attract and retain talent, said search firms Longhouse Consulting and Ciel HR Services.

“Companies are delaying their decision to close an open position. Some are delaying it till next quarter. They are buying time,” said Anshuman Das, chief executive of CareerNet and Longhouse Consulting.

“That aggressive pitching of salaries, readiness to give huge counter offers to rope in talent is not there anymore,” said Ciel HR Services CEO Aditya Narayan Mishra.

The road ahead will be bumpier as the axe of cost cutting is directly falling on employees where layoffs will mount and more rationalisation will be seen in the next two quarters, warned more than half a dozen investors, board members and company founders ET spoke to. The increase in the number of M&As and consolidation will lead to leaner teams.

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“In 2022, many startups are realising they have excess people. This can lead to a very high standard of quality control now,” said Pranav Pai, managing partner at venture capital firm 3one4 Capital.

For new hires, salaries will be more controlled, the number of vacancies will come down and companies will be willing to defer hiring. For existing employees, appraisal will be much stricter, quality control and scrutiny on employee spend will be higher.

Board members agree that if candidates are being difficult, the company must move on. “If candidates keep shopping offers, they may stand to lose more of them … What happened last year in terms of playing with counteroffers and the unprofessional behaviour by some candidates was unsustainable … companies will not tolerate such superfluous behaviour,” added Pai.

Concurred Alok Goyal, partner at Stellaris Venture Partners: “Most boardrooms are discussing burn plans, which will impact the pace of hiring, and in some cases, even rightsizing existing teams.”

The change in the overall startup environment comes after two years of steep run up in valuations and fundraising, which also intensified the war for talent. However, since the beginning of 2022, more than 3,000 people have been laid off. This week,
Cars24 fired more than 600 employees, while
ed-tech unicorn Vedantu axed 424 people. Unacademy, Lido, Trell, Meesho and Furlenco have also downsized earlier in the year.

“Investors are giving cautious guidance to portfolio companies and asking them to be prudent in making investments,” said Krishna Kumar, founder of edtech company Simplilearn. “The real impact will be seen a quarter or two down the line,” he added.

Compensation too has already started sobering down, with founders tightening their purse strings as liquidity dries up, concerns about geopolitical tensions rise, and corrections in stock markets affect deal making.

“A lot of the larger startups are rethinking projects outside of their core and are becoming cautious on expansion of teams. As the intense demand for talent wanes, we will see a rationalisation of salaries,” said Sajith Pai, director, Blume Ventures.

“Compensations are beginning to sober down as companies are waiting it out for the right candidate,” said Arpi Mehta, cofounder, Toothsi, a dental-tech startup. “Especially in tech and product functions, the crazy expectations that we saw 12-18 months back are now moderating,” she added.