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HomeTechWinter is coming, Y Combinator warns; startups show solidarity amid layoffs

Winter is coming, Y Combinator warns; startups show solidarity amid layoffs


After a bonkers 2021, tech companies and startups worldwide have endured tough times in 2022. But the worst is yet to come, according to Y Combinator. The famed Silicon Valley startup accelerator has told founders of all its portfolio companies to hunker down, cut costs and extend their runways “within the next 30 days”.


Also in this letter:
■ Cars24 sacks 600 employees as startup layoffs continue
■ Crypto exchanges face funding dip, too
■ MeitY’s data centre framework ready for Cabinet approval


Plan for the worst, cut costs, extend runway in 30 days, YC tells founders

Y Combinator has cautioned founders of all its portfolio firms, telling them to plan for the worst amid a perceptible slowdown in the financing market.

Not mincing words: The missive, sent on Wednesday, read, “The safe move is to plan for the worst. If the current situation is as bad as the last two economic downturns, the best way to prepare is to cut costs and extend your runway within the next 30 days. Your goal should be to get to Default Alive.”

Default Alive is a term coined by Y Combinator founder Paul Graham for startups that – based on current expenses, growth rate and cash on hand – can reach profitability before they run out of money.

“If your plan is to raise money in the next 6-12 months, you might be raising at the peak of the downturn. Remember that your chances of success are extremely low even if your company is doing well. We recommend you change your plan,” YC said in the note.

State of play: The note comes on the back of a global meltdown in technology stocks, the effects of which are now being felt in the private financing space as well. In India, there has been a palpable slowdown in big-ticket funding rounds as founders are being told by investors to conserve cash.

At the start of the pandemic in March 2020, Sequoia Capital, a periodic soothsayer for the industry, had warned its portfolio firms that outbreak could usher in a prolonged global economic slowdown and fundamentally alter the business environment.

In an editorial titled “Coronavirus: The Black Swan of 2020,” it said companies should consider cutting costs, revising sales forecasts and conserving cash.

A year later, in March 2021, Sequoia published a follow-up post advising startups to prepare for stronger economic growth in the second half of 2021. That, too, came to pass as governments cut huge stimulus cheques, leading to unprecedented liquidity and huge funding rounds.

But markets have tightened considerably in 2022. YC wrote in its note, “If you don’t have the runway to reach ‘default alive’ and your existing investors or new investors are willing to give you more money right now (even on the same terms as your last round) you should strongly consider taking it.”

Layoffs set in: A number of Indian startups that have laid off employees since the start of 2022 would do well to heed this advice. We reported on April 18 that more than 1,800 contractual and full-time employees have been fired from Unacademy, Meesho, Trell, Lido Learning and Furlenco.

Edtech unicorn Vedantu had laid off 624 people this month, including 424 on Wednesday, and it still isn’t the latest startup to have announced job cuts. Which brings us to our next story.


Cars24 sacks 600 employees as startup layoffs continue

cars24

Used car market marketplace Cars24 has laid off over 600 employees, or about 6% of its 9,000-strong workforce, according to people aware of the matter.

The layoffs have taken place across departments and roles, these people added.

Raised funds six months ago:Cars24 closed a $400 million financing led by Alpha Wave Global in December. This included a $100 million debt component. The company’s valuation jumped three times to $3.3 billion after the funding round.

Startups layoffs mount

The company, which is backed by SoftBank and Alpha Wave Global, joins a growing list of startups that have fired employees to conserve cash amid a slowdown in funding.

Startups show solidarity: As layoffs hit the sector, the tight-knit startup community is stepping up to look out for its own. On Wednesday, when Vedantu laid off 424 employees, founders, CXOs and HR teams of many other startups reached out to help the laid-off staff find new employment.

Who’s doing what: Scaler, Filo, Classplus, PhysicsWallah, BrightChamps, Teachmint, ByteLearn and Mojocare are some of the companies that have offered help.

  • Scaler is hiring across roles in leadership, product, tech, business and sales, and has recently hired from Lido Learning.
  • Live instant tutoring app Filo, which is hiring aggressively this financial year, has hired from Lido and is in talks with some laid-off employees from Unacademy.

“The startup ecosystem is a small world. All of us know each other, we know the context that drives business decisions. There are situations where employees are laid off, but other companies know how these things work and are happy to help,” said Blume Ventures director Sajith Pai.


Crypto exchanges face funding dip amid low trading, high taxes and Terra

crypto exchanges

Indian cryptocurrency exchanges are set to face lower valuations, longer negotiation cycles, and hard bargaining by venture capital firms due to falling trading volumes, talk of more restrictive tax regulations, and the impact of the Terra-Luna collapse on retail investors.

Market watchers say at least six transactions, both investments and M&As, are stuck over valuation mismatches between crypto platforms and investors.

A leading crypto platform, which recently announced a funding round, started reaching out to VCs in September 2021 when valuations were at their peak. Conversations dragged on until the company closed a smaller round at a lower valuation recently.

Trading activity, which accounts for the bulk of revenue at exchanges, will shrink further when tax deducted at source (TDS) kicks in on June 1, squeezing profit or even leading to losses for players with higher costs.

Experts said even the exchanges that have closed deals at high valuations will find it tough to meet projected numbers.

Valuations of global crypto companies have been hammered. On Thursday, US crypto major Coinbase was trading at $63.03, having lost more than 80% of its value since hitting a record high in November.

TWEET OF THE DAY


MeitY’s data centre framework ready for Cabinet approval

data centre

The IT ministry, which plans to offer incentives worth up to Rs 15,000 crore under a national policy framework for data centres, will soon take it to the Cabinet for approval, senior government officials told us.

The government is eyeing investments of up to Rs 3 lakh crore in the data centre ecosystem over the next five years, according to a draft of the policy.

“This will be the largest investment that any incentive scheme has attracted so far. It even outstrips the semiconductor policy in terms of expected investment,” an official said.

A large portion of the Rs 15,000 crore corpus will likely be given out as incentives for capital investment, sources said.

For example, the IT ministry plans to provide an incentive of 4-6% on investment if the components procured – such as servers, server trays, server housing units and others – are from Indian manufacturing units.

An additional incentive of up to 3% will be provided for the use of renewable energy, a second official said.


ETtech Done Deals

Startup

■ Warehouse robotics and automation company GreyOrange said it has raised $110 million from Peter Thiel’s Mithril Capital and other existing and new investors, along with separate debt financing from BlackRock.

■ Endurance Technologies has bought the battery management system unit of energy tech startup Ion Energy for $40 million in an all-cash deal. Endurance will buy 51% of Maxwell Energy Systems, a subsidiary of Mumbai-based Ion Energy, for $17.5 million to begin with, and the remaining 49% in phases over the next five years, it said.

■ GeoIQ, a location intelligence startup, has secured $2.25 million in funding from Lenskart, an omni-channel eyewear retailer. Existing investors 9Unicorns and Ecosystem Ventures also participated in the round.

■ Cloud certification and skilling platform QwikSkills has raised Rs 3.85 crore in a funding round from Indian Angel Network (IAN) and others. The round was led by angel investors Manish Sinha and Naveen Gupta of IAN.

■ Delhi-based fashion retailer High Street Essentials, which owns women’s fashion brands FabAlley and Indya, has raised Rs 40 crore in a mix of equity and debt funding from venture debt firm Stride Ventures.


Other Top Stories By Our Reporters

ola

Uber hikes fares, offers flexible payments to drivers: In a conciliatory note to its drivers, Uber has hiked fares by 10-15% in several cities to increase their earnings amid soaring fuel rates. It has also offered them flexibility on payments and visibility of destinations.

Andreessen Horowitz launches $600 million gaming fund: Venture capital giant Andreessen Horowitz has launched a new $600 million gaming fund, according to a report by Techcrunch. Called Games Fund One, it is being led by general partners Andrew Chen, Jon Lai, and James Gwertzman.


Global Picks We Are Reading

■ Can Elon Musk Just Walk Away From Twitter? (WSJ)
■ A panel to combat disinformation becomes a victim of It (NYT)
■ Deutsche Bank among longers probed by US over WhatsApp use (Bloomberg)

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





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