Cars24 to Vedantu, start-up lay-offs accelerate on capital crunch worries

Falling valuations, slowing funding rounds add to woes; move aimed at conserving cash and shore up profitability

Falling valuations, slowing funding rounds and faltering investor sentiment seem to have prompted many start-ups to lay off employees in a bid to conserve cash. The latest to do so is SoftBank-backed Cars24, a leading e-commerce platform for pre-owned vehicles, which has laid off over 600 staff, according to sources in the know.

The move, they said, is aimed at conserving cash amid cautious investor sentiment and a slowdown in funding.

The layoffs, which constitute more than 6 per cent of the company’s total employee strength of around 9,000, have taken place across departments and roles. Cars24 confirmed the layoffs but declined to reveal the number of people fired.

“This is business as usual — performance-linked exits happen every year,” said the company in a statement.

Early this year, Cars24 launched its second-largest Mega Refurbishment Lab in Bengaluru.

The massive facility is spread over 105,000 sq. ft. and will refurbish over 80 cars daily and provide upwards of 250 auto expert jobs. This move followed a Series G funding round in which the company raised $400 million at a valuation of $3.3-billion.

Cars24 is just one among a growing list of start-ups like Vedantu, Unacademy and Meesho and others, which have fired employees recently.

This week edtech unicorn Vedantu laid off 424 employees — about 7 per cent of the company’s workforce — according to a blog post put out by the Bengaluru-based firm. Experts say that the move is an attempt to focus on profitability and is also a consolidation and cost-cutting drive. The layoff took place days after the company fired 200 of its contractual and full-time employees.
 

Vamsi Krishna, chief executive officer (CEO) and co-founder of Vedantu, said that the external environment has become tough, thanks to the war in Europe, fears of a recession, and the interest rate hikes by the Fed, which have led to inflationary pressures globally as well as in India.

Edtech unicorn Unacademy, too, recently laid off about 600 employees, or about 10 per cent of its workforce, including full-time employees, contractual workers and educators. Back in March, Unacademy had laid off over 100 employees from its PrepLadder team as part of a process of “restructuring” the organisation.

That’s not all. Over 800 employees of WhiteHat Jr resigned from the Byju’s-owned edtech start-up in the last two months after being asked to work from office. And in February, edtech startup Lido Learning shut down operations.

Investors tightening their purse strings

Experts say that the job cuts are clearly linked to apprehensions of a scarcity of capital. The SoftBank Group, a global technology investor that funds several Indian companies, said this month that it has made a record loss of over $26 billion at its Vision Fund unit, as the value of its portfolio reduced. Masayoshi Son, founder and CEO of SoftBank, said that this year the firm may invest only half or a quarter of what it did last year.

Son’s comment signals a slowdown in large funding rounds globally and in India, caused by macroeconomic factors and the Russia-Ukraine war. SoftBank has reported an annual net loss of $13.12 billion.

“Nobody knows what will happen tomorrow in this kind of a market. So we have to prepare for the worst. I want to put ourselves into the defence mode and pile up lots of cash in hand. We would be much more careful when we invest new money,” said Son, in a company webcast.

SoftBank’s presentation showed that its $1.4 billion investment in Indian fintech firm Paytm has a fair value of around $800 million, resulting in a cumulative valuation loss of $600 million.

According to an IVCA-EY report on PE/VC investment for the month of April 2022, the total funding of $5.5 billion was 27 per cent lower on a year-on-year basis.

In such a scenario, unicorns that were riding high on the back of staggering valuations in 2021, are being asked tough questions. In a letter to employees, Uber CEO Dara Khosrowshahi said that the company is tightening its belt as investors are now asking questions about profitability and cash flows.

“Given this environment, capital will be scarce in the upcoming quarters,” said Krishna of Vedantu. “With Covid tailwinds receding, and schools and offline models opening up, the hyper-growth of 9X that Vedantu experienced during the last two years will also get moderated. For the long term sustenance of the mission, Vedantu would need to adapt.”

Moreover, the crash of tech stocks in the US, and the poor show by some of the recently listed startup stocks in India, have delayed the initial public offering (IPO) plans of several others. As of December 2021, close to 12-15 startups had announced their intention to launch IPOs, but so far, not a single new startup has come out with their plans. In fact,  Lenskart has reportedly put its listing plans on hold and is waiting for the market to improve. Some others waiting in the queue include OYO, Snapdeal, Boat and Pharmeasy.