After a record-breaking year in 2021, India’s startups ecosystem has seen very few large funding deals of late. This has prompted several new-age companies, from Unacademy to Meesho, to lay off employees as they look to cut costs and get back to basics now that the Covid-fuelled funding party is well and truly over.

Also in this letter:
■ IT firms likely to hand out 8-10% wage hikes this fiscal
■ Flipkart opens up logistics arm to other ecomm firms
■ Free speech must be consistent with the law: Musk

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Layoffs kick in at startups as large funding rounds wane

Large funding rounds are few and far between these days, so startups are looking to cut costs by shedding staff.

Layoff season: Over the past few weeks, more than 1,800 contractual and full-time employees have been fired from:

Sources told us some of these companies may look to cut even more jobs as the trend is likely to play out further.

Investors have begun to ask high-growth companies to get back to basics – that is, chase profits and reduce cash burn, several insiders said.

We spoke to a number of startup founders, investors and analysts for this story. They all said the layoffs are at late-stage startups with high valuations and significant cash burn that are seeing a marked reduction in $100-150 million funding rounds.

Exuberance fades: In March and April four unicorns were minted in India, compared to 10 in the same period last year. So far this month, no new unicorn rounds have been announced, against eight in April 2021. Last year was a record-breaking one for startups, with 40 new unicorns.

Stick to the basics: In this new funding environment, companies will be more wary of taking risks and will stick to their core competency, said Rahul Chowdhri, cofounder and partner of Stellaris Venture Partners, an early-stage investor in brands like Mamaearth, Whatfix, Shop101, and Slintel.

“Indian startups have seen such cycles in the past and this is possibly the fourth time in the last 15 years that such a correction is taking place,” he said.

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IT firms likely to hand out 8-10% wage hikes this fiscal

Indian IT companies are likely to raise annual wages by 8-10% for local employees this fiscal year as the industry copes with an unprecedented talent crunch and 17-28% attrition rates at companies such as TCS and Infosys.

In context: That compares with a salary increase of 10-12% last year, but it’s still among the highest in recent times.

“FY23 cycle will remain one of the highest for IT employees in terms of wage hikes,” said Kamal Karanth, cofounder of Xpheno, a specialist staffing firm. Still, “they (companies) realise that increasing compensation is not sustainable in the long run, and their balance sheets are already showing the impact.”

This commentary is echoed by C-suite executives. HCL Technologies’ chief human resource officer Apparao VV told us the company expects to roll out wage hikes in July, similar to the 7-8% band offered in FY22.

Experts pointed out that an 8-10% increase could be the threshold as long as IT companies continue to project a robust demand environment.

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Flipkart opens up logistics arm Ekart to other ecommerce firms

Flipkart has opened up its internal logistics arm Ekart to other ecommerce players, people briefed on the matter told us. Flipkart Group CEO Kalyan Krishnamurthy also discussed this at a company town hall on Wednesday, sources said.

This means orders for companies such as Nykaa, FirstCry and others could one day be delivered by Ekart.

“The opening up was gradually done from January onwards and now it has about 30 companies including Snapdeal and others,” one of the sources said.

Sources in third-party logistics companies also said Ekart has held talks with several ecommerce platforms to fulfill their shipments. “It looks like they are serious about it this time,” an executive at a logistics firm said.

Second attempt: Before it was acquired by Walmart in 2018, Flipkart had once tried opening up Ekart to external platforms on a small scale but the project wasn’t expanded as the company was still figuring out how to best serve its own order volumes.

NFTs on Flipkart? During Wednesday’s town hall, Krishnamurthy also said Flipkart was in the early stages of building its own non-fungible token (NFT)-related business. He said this in response to a question by a Flipkart employee on whether the company was looking to bring in web3-related products.

TWEET OF THE DAY

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Free speech must be consistent with the law, Musk says

Elon Musk has tried to clarify what he meant by “free speech” on Twitter, a day after the social media company accepted his $44 billion takeover deal.

What he said: Musk stated that free expression must be consistent with the law, and that he opposes censorship that goes beyond the law.

“The extreme antibody reaction from those who fear free speech says it all,” Musk said in a cryptic tweet, referring to his critics.

He added in a subsequent tweet, “By ‘free speech’, I simply mean that which matches the law. I am against censorship that goes far beyond the law. If people want less free speech, they will ask government to pass laws to that effect. Therefore, going beyond the law is contrary to the will of the people.”

Trouble ahead? “Free speech” has been prominent in Musk’s stated plans for the social media platform. But several experts told us the Tesla CEO’s $44-billion takeover offer for Twitter could lead to more run-ins with governments in countries such as India, where free speech isn’t protected as fiercely as it is in the US.

Also Read:Jack Dorsey to take home nearly $1 billion once Elon Musk’s Twitter deal closes

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Google says it will focus on accelerating India’s digital growth

Google will focus on accelerating growth in India’s digital ecosystem and is “excited about expanding partnerships with a number of partners in the region”, the company said during its first-quarter earnings call.

Sundar Pichai, chief executive of the US-based search giant and its parent, Alphabet, told analysts that its work in India helped in the development and launch of Google Pay globally.

Google Pay, the payments arm of Google, was launched as Tez in September 2017 in India and has a significant portion of its customers in India. Currently, 150 million people in 40 countries are using Google Pay, Pichai said.

Q1 results: On Wednesday, Alphabet posted a 23% year-over-year growth in revenue to $68.01 billion in the quarter ended March 31. Services revenue totalled $61.47 billion, including advertising revenue of $54.66 billion. Cloud revenue was $5.82 billion.

Pichai also acknowledged the debate on Play Store’s policies. “We have made changes to our Google Play pricing model to help all developers on our platform succeed,” he said. “Today, 99% of developers qualify for a service fee of 15% or less. While this impacted our short-term results, we think it’s the right long-term approach to support the ecosystem and to be the most developer friendly App Store and gaming platform available.”

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Other Top Stories By Our Reporters

WoodenStreet raises $30M: Furniture and home decor platform WoodenStreet has raised $30 million in a funding round led by WestBridge Capital at a valuation of $156 million (Rs 1,200 crore). The fundraising was a mix of primary and secondary investment.

Win-win for banks and neobanks: Traditional banks are partnering with new-age digital entities known as neobanks to get access to young, tech-savvy customers, according to a report by Redseer Strategy Consultants. It said collaboration benefits both parties, giving neobanks a stronger footing and traditional banks access to young, tech-savvy customers.

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Global Picks We Are Reading

■Elon Musk bets Twitter users will like a more freewheeling platform (WSJ)
■How internet blackouts stifled Kashmir’s digital economy (Rest Of World)
■Bitcoin becomes official currency in Central African Republic (BBC)

Today’s ETtech Morning Dispatch was curated by Zaheer Merchant in Mumbai and Judy Franko in New Delhi. Graphics and illustrations by Rahul Awasthi.