FT-Indian tech start-ups in hiring freeze

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 India’s internet companies are racing to cut costs amid a cooling of investor sentiment towards the sector, which had been one of the most conspicuous targets for a global surge of funding into technology start-ups over the past two years.

Grofers, whose smartphone app allows users to order groceries from nearby shops, told staff last week that it would lay off 150 workers — about a tenth of its workforce — as well as withdraw job offers to 67 graduates.

The company, which raised $120m in November from investors including Japan’s SoftBank, felt obliged to take the step to reduce its losses after concluding that it would have to wait longer than expected for its next funding round, chief executive Albinder Dhindsa said.

“If you see what’s happening in the private funding market, things are not that great,” he told the Financial Times. “We see this as the capital that we will have for the foreseeable future, so we want to be a bit wiser in allocating it.”

Investment pouring into Indian start-ups had by February put the country behind only the US and China in terms of its number of “unicorns”, or non-listed companies that have raised money at a valuation above $1bn, according to research by CB Insights.

But the flow of funding has slowed amid concerns that valuations have become excessive. In the past nine months, Indian technology companies have raised $3.1bn, down from $6.7bn in the preceding nine months, according to the research firm Tracxn.

Grofers is one of several companies to retract or postpone hiring pledges. Flipkart, which claims to be the country’s biggest online marketplace by sales, in May pushed back the start dates of new recruits by six months. Last week it confirmed the merging of several units in a further push for cost efficiency.

Flipkart raised funds at a valuation of $15.2bn last July, but a Morgan Stanley fund with a stake in the company slashed its valuation of Flipkart to $9.4bn as of the end of March.

Sanjeev Aggarwal, co-founder of the Indian venture capital firm Helion Venture Partners, said the sector had become “overpriced” relative to its level of development, and that a “very healthy” correction in valuations and management behaviour was now under way. “Entrepreneurs are now beginning to be more focused on fundamentals than on chasing unabated growth at any cost,” he said.

Zomato, another Indian unicorn, came under the spotlight in May when HSBC analysts said the company was worth only about $500m.

Deepinder Goyal, Zomato’s chief executive, argued that HSBC’s report was based on careless analysis — but he added that the company had sought to reduce its “cash burn” to protect itself amid a weaker funding environment, by making heavy job cuts in recent months.

“As soon as the funding dried up, it was like: cut the burn right now,” Mr Goyal said.

One of the most prominent figures in the Indian funding space left the stage last month when SoftBank president Nikesh Arora, who oversaw big bets on companies such as Flipkart’s rival Snapdeal, resigned from the Japanese company. US regulators are investigating investor allegations that he had conflicts of interest, it emerged last week.

Mr Arora has denied all the allegations. Both he and SoftBank said such complaints had no connection with his exit.

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