The startup scene has been substantially subdued in 2022. Compared to 542 in 2021, only 244 new unicorns were created in 2021. Indian startups have not been aloof from the global trend, and compared to 44 in 2021, the country produced only 23 new unicorns in 2022, nearly 50% down. India attracted $25 billion of funding in late-stage startups in 2022, compared to $43 billion in 2021.
The most dominant theme in the Indian startup scenario this year has been the massive lay-off in tech companies. As per available data over 18,000 technology professionals lost jobs in 52 startups including unicorns and semi-unicorns. Globally, 1400 tech companies laid off over two lakh employees in 2022. The trend is likely to continue in 2023, experts believe.
India’s tech hubs like Bengaluru and Hyderabad are today more in the news for layoffs than anything else. Among the distress stories coming from Bengaluru, there are many cases where newly married couples have both lost well-paying jobs, with just two months of basic salary paid as a severance benefit. In a job market hit by global recession, finding job replacements has never been this difficult. The firing of tech employees was led by global behemoths including Meta, Amazon, and Coinbase.
The first half of 2021 was the brightest period for startups globally. It came on the back of early Covid-19 lockdowns when tech companies saw massive growth in their businesses. Companies went on a hiring spree expecting the trend to continue but, the economic slowdown caused by the Covid-19 closures of factories and a large number of people losing their jobs began to tell on the cash registers of the companies in the second half of the year.
By the end of 2021, the economic slowdown effects more widespread and tech stocks had started taking hits on exchanges worldwide. In February, the Russia-Ukraine war further dampened the global investment environment as venture funds didn’t want to take risks in rapidly-changing geopolitics.
Tech companies with unbelievable market caps and valuations began to face a liquidity and funding crisis, which hit the outlook for the entire tech sector.
Apart from layoffs, Indian startup scene has been vibrant, but far from robust. India is the third largest startup ecosystem with over 85,000 startups and 107 unicorns. The government has committed Rs 10,000 crore “Fund of Funds” to grow the domestic VC industry. It also claims to have offered over 220+ tax exemptions.
Department for Promotion of Industries and Internal Trade (DPIIT), which takes a lead role in India’s startup campaign, has been regularly launching new initiatives to help Indian startups. One such initiative taken recently, India-US Startup SETU, aims to benefit Indian startups from US investors and mentors.
Software Technology Parks of India (STPI), an autonomous organization under the Ministry of Electronics and Information Technology (MeitY), has set up a Centre of Excellence named NEURON at Mohali in Punjab. It aims to help startups in Data Analytics, Artificial Intelligence, and Audio Video Gaming. Early this month, STPI organized a National Conclave of tech startups under its Building The Next Unicorn initiative in New Delhi.
This month, Karnataka has released a new startup policy that looks to develop a state-wide startup ecosystem, taking the focus away from over-leveraged Bengaluru. It is planning to set up 50 new-age innovation networks (NAIN) in tech institutions outside Bengaluru and plans to add over 10,000 startups in the next five years.
Bengaluru comes across as the most promising destination for startups. As per a study by Inc42, among the next 100 unicorns, Bengaluru is likely to account for 43%, Mumbai 22%, Delhi-NCR 16%, Others 10%, and Ahmedabad, Chennai, and Hyderabad each 3%.
India is celebrating Startup India Innovation Week from January 10 to January 16 and some of the most celebrated startup icons and venture funds are likely to converge on Noida, in Delhi-NCR. Tesla and SpaceX CEO Elon Musk is also expected to be present on the occasion.
While India’s huge talent pool and an equally large number of everyday problems create an environment just suitable for startups, venture funding is the only problem that they face. With funding becoming scarce, the startup scene is not as cheerful as in early 2021. As layoffs are rampant, the morale of the spirited startup workers and founders is conspicuous by their absence.
Will the situation change any time soon? The global economy is hit by high inflation and geopolitical tension. The macroeconomic environment is facing several stress factors from high oil prices to global supply chain disruptions. Smaller economies like Sri Lanka, Pakistan, and Bangladesh in India’s neighbourhood represent the collective hit they have taken globally. The IMF and the World Bank are overstretched in meeting their immediate financial needs.
The tough economic situation is unlikely to change in the near term. And, in this environment venture funds are unlikely to take risks and invest substantially in startups. (IPA Service)