I think 2020 and 2021 should be marked as the most weird years in human lifetime history. While at one end, people were dying and everything was at a standstill – VCs and startup circles were going berserk with their money and investment.
Governments across the world were trying to bring up the economy by pushing and pumping up liquidity in the markets via economic packages, this money eventually found its way into the financial ecosystem. With new found bounds of money, VCs jumped on the bandwagon of investing in startups-right, left and center. We witnessed several rounds of new investment, acquisition and acquihire happening and suddenly a huge entrepreneurship wave sweeping across the nations. What did startups do with this new found money. They splurged it and spent it like there was no tomorrow.
Result of this- In 2022, this hunky dory stopped and till now at least 5600 employees have already been laid off across different unicorns and we might see some more going out of work very soon.
What actually caused all this ?
War in Ukraine, rising inflation, supply chain disruption all these factors changed the course of winds in the market. Adding to this was the rising interest rate scenario, reducing money supply added fuel to the fire and ever since we have seen deep corrections happening in the market. With all this happening, naturally, VCs lost their sheen. Raising funds and investing have both become a mammoth task for them. When such scenarios happen, the easiest thing to do is to start doing position sizing where VCs try to reduce their bet by exiting their current positions at some reasonable valuation or force their current founder of their investment to reduce their cash burn and focus on being profitable. The most immediate repercussion of such measures is reduction of labor which lead to mass layoff in several startups.
Till the time, market scenarios doesn’t change, we don’t see any improvements coming anytime soon in this whole fiasco!
This article is written by Nikhil Gupta, founder PoonjiMitra.
Linkedin of PoonjiMitra: https://www.linkedin.com/company/poonjimitra
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