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The party is over, startups are junking joining bonuses, stock options

MUMBAI : Startups are doing away with joining bonuses and offers of stock options besides reducing notice periods as they conserve cash to navigate a slowdown in funding. Instead, many of them are hiring from the available pool of retrenched employees where required, even as they brace for more layoffs.

The heady days of 50-60% pay increases for new hires are gone, and many startups now offer no pay hikes for new talent, said Shiv Agrawal, managing director of recruitment firm ABC Consultants. “The joining bonuses are not coming in, and although the startup story is not deflated, the prick in its growth story is getting larger,” Agrawal added.

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Facing headwinds

Over the last six months, startups have let go of about 11,000 employees, and senior industry executives say more may go over the next six months amid rising costs, shrinking valuations and a funding crunch.

Cost-cutting and redundancy in roles are some reasons startups cited for laying off employees.

“Mass layoffs happen in every bear cycle as companies face a lot of headwinds. Growing demand and limited supply of tech talent in the market usually decide salary ranges. This might change in the short term as companies focus on the robustness and fundamentals of running a healthy business,” said Kunal Bhatia, who founded SuperLearn, an edtech platform which recently shut down its operations after two years.

Stock market volatility and worldwide inflation have impacted valuations in public and private markets, tempering fundraising discussions.

“While senior talent’s notice periods may not change, the middle management will see their contracts with a notice period of not more than 30 days from the earlier 2-3 months. For juniors, it was always one month and will remain so,” said Rituparna Chakraborty, co-founder and executive vice-president of TeamLease Services, a recruitment company.

Senior executives say stock options, one of the key components of startup offer letters, are not attracting talent anymore, given the declining valuations of many newly listed companies.

Jerin Venad, co-founder and chief executive of Cityflo, a Mumbai-based private bus aggregator, admitted that funding has been difficult in the last few months.

“Now, the layoff pain cannot be avoided,” he said.

In the last couple of years, many startups gave substantially high packages, stock options, more flexibility, and increments to new hires, he said. “From now, startups will get more patient with recruitment for sure,” he added.

A Bengaluru-based investment banker said startups have bloated tech teams as they hired aggressively and expanded their sales and marketing teams to show their presence amid large fundraises. “In the next 6-9 months, such firms will need to show numbers and cash on their financials. There will be more job cuts as many companies will do it in tranches and quietly to avoid attention,” the banker said.

Edtech and fintech startups are expected to face the biggest brunt of changing policies and post-covid preference for physical rather than online schools.

So far, several large startups, including Byju’s, Unacademy, Meesho, Vedantu, Udaan, Rupeek, Cars24, Trell and Furlenco, have fired employees.

“We have seen layoffs in the startup space growing recently. The attraction and retention challenges continue both in startups and other organizations. Organizations continue to be innovative with joining and retention programmes, and we see this trend to continue,” said Rajul Mathur, consulting leader, India–work and rewards for advisory firm WTW.

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