The Indian start-up sector is bracing for more job losses as some half-a-dozen midsized companies issue layoff notices to hundreds of employees in a bid to trim costs and conserve cash in what portends to be a harsh summer for an industry struggling to deal with the effects of fast-paced growth.

While the trouble at Snapdeal — India’s third-largest online marketplace — has grabbed attention, others such as ethnic online retailer Craftsvilla, fashion portal YepMe and Tolexo are among the start-ups that have handed out pink slips in recent weeks, according to several employees and industry sources.

“(Craftsvilla) has laid off more than 100 staffers in recent weeks, including its entire product and technology teams and most of its operations and marketing teams,” said a former senior executive of the company.

While industry insiders blame the tough funding environment for the job cuts — start-up investments dropped by 28 per cent to $1.4 billion from a high of $2 billion in 2015, according to data aggregator Venture Intelligence — others argue that rash decisions by founders and the top management also contributed to the current bloodbath.

Start-ups had started cutting back on variable costs like marketing and advertisements in early 2016, when the slowdown in funding began.

But, now, they are looking to cut down on employee costs, the largest fixed costs for a start-up. In 2016, a slew of ecommerce, food-tech and logistics start-ups let go of more than 9,000 employees, according to research firm Xeler8.

“More (layoffs) will happen throughout 2017. The cleanup has started and most consumer internet companies will go through this,” said Harminder Sahni, Managing Director at consultancy Wazir Advisors.

Employees at homestay start-up Stayzilla knew in January that things were going awry, as the company failed to raise a fresh round of $20 million, Founder Yogendra Vasupal told. The 10-year-old start-up announced last week that it was shutting down, letting go of its 210-member team.

“While we were preparing for the worst, we still had a little hope. But when it was clear the company was shutting, the main priority was to relocate the employees,” said Ipe Walliaveetil, who was senior manager for operations at Stayzilla. According to Vasupal, the investors Stayzilla approached cited stiff competition in the sector as a reason to back off.

In a blog post, Vasupal wrote that he had treasured vanity metrics such as gross merchandise value, or gross sales, over fundamental metrics such as cashflow and working capital.

“The way a lot of these companies have been splashing out cash to fund discounts, customer acquisition costs, or the salaries they have paid to top executives, it’s become absolutely unviable and can only be perceived as extremely irresponsible behaviour,” said Sahni of Wazir Advisors.

Job losses are also a result of restructuring at some companies. Payment gateway PayU India dropped plans to launch a credit card product and had to downsize its 85-member call centre and collection team to 25, the company had told. PayU declined to comment for this story.

Industrial marketplace Tolexo is laying off about 50 employees as it integrates teams with parent IndiaMART, according to a source from the company who requested anonymity.

“Tolexo as a platform had been taking orders from retail as well as wholesale customers, but since we realised that our value proposition is strongest for wholesalers, we have decided to focus only on this segment,” said Tolexo CEO Brijesh Agrawal.

“We are doing a very tight integration of teams at both entities and, hence, we have had to let go off some people.”

He declined to specify the exact number of people being asked to go. Companies hit by the effect of demonetisation have also been forced to let go of employees.

Fashion retailer YepMe recently laid off an unspecified number of people from its warehousing and quality control teams.

“We were planning to break-even in January. But demonetisation hit, (the option for cash payments on delivery) disappeared and sales were down. We decided to move our focus outside of India,” said Vivek Gaur, Founder of YepMe, which recently began operations in the United Kingdom.

“In India, we decided to recalibrate the business and decided that the best thing is to outsource certain functions,” he said.

Source: The Economic Times