First Principles | Tech layoffs are the need of the hour - Hindustan Times
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First Principles | Tech layoffs are the need of the hour

Nov 18, 2022 08:34 PM IST

Why do funders insist founders let go of people in such large numbers? The answer depends on whom you turn to for pointers.

As technology companies the world over lay off over 120,000 people and counting, it is time to ask: Why do funders insist founders let go of people in such large numbers?

The unnamed founder-CEO, having done with the venting, says, “When you raise funding, you choose to sup with the devil.” (Shutterstock) PREMIUM
The unnamed founder-CEO, having done with the venting, says, “When you raise funding, you choose to sup with the devil.” (Shutterstock)

The answer depends on whom you turn to for pointers. “To fight the battle tomorrow, you must survive today,” is the perspective Bengaluru-based investor Krishna Jha of Telnet Ventures offers. Once upon a time, Jha himself was an entrepreneur.

When the same question was asked to the founder-CEO of a Software as a Service (SaaS) company, he yelled over the phone: “All these venture capital firms screwed us. They compelled us to expand and now they insist we let go of people and cut costs.” Talking from his office in Singapore, the New York-headquartered company has an office in New Delhi as well. Ironically, he insisted he not be named here because it may impact future fundraising attempts. Very recently, he raised nearly $100 million from two marquee private equity firms.

How to then decode these differing narratives? Read sub-text.

The unnamed founder-CEO, having done with the venting, says, “When you raise funding, you choose to sup with the devil.” But he speaks with the benefit of hindsight unavailable to most. Back in the late nineties when he had just graduated from IIT Kanpur, the young man decided to build an entity in the SaaS business. India is now on the cusp of becoming the world’s SaaS capital.

Back then though, this was a space few people understood, and he felt compelled to relocate to Singapore and eventually New York. He reckoned the investment ecosystem there would be more receptive. What he hadn’t reckoned with was how brutal investor expectations can get when it comes to the returns they expect. The only difference between India and more mature financial markets in places such as Singapore and New York is that they are prepared to listen to more nascent stories such as his, take wilder punts, and wait longer.

That is why despite having started even as the dot com boom went bust, and investors turned tightfisted, he could hang on long enough to convince investors about his intent. Since then, he has witnessed downturns that include the financial crisis of 2008, the implosion on Wall Street in 2012 and the most recent pandemic-induced bust of 2020. Through all of it though, he expanded operations because “investors insisted I must”. He was told that if he doesn’t, he “wouldn’t grow” and “would have to stay content with being a mom-and-pop shop.”

Booms happen and bust cycles are inevitable, Jha explains. Each time a bust happens, it is inevitable that people get laid off. “Entrepreneurs must do that to survive.” His own experience as a founder in an earlier avatar offers him perspective. When he witnessed a bust cycle for the first time and it was evident funds will be difficult to come by, Jha was compelled to let go of people. He recalls not having the mental muscle to cut operations to bare bones. He let people go in small numbers and hoped things will look better tomorrow. Over time, however, he figured, it is a painful way to die, things don’t change overnight and investors hold on to their money until the fog clears.

Much later, upon thinking dispassionately, he learnt a lesson: It is better to let go of as many people as you can. “While it appears like slash-and-burn, what you are doing is buying time to think through what to do next.” As funds come in, you start re-hiring or looking for the talent you may otherwise have overlooked to build a more resilient operation.

This is not to suggest funders and founders don’t commit excesses when there’s easy money; or that they do not do things such as hire more people than needed so their entities are dolled up on paper to attract other investors. Both Jha and the SaaS founder agree there is truth here. But what they also agree upon is that overall good will come out of the current funding winter and jobs cuts. More resilient businesses will emerge. Right now, the pain is real and it must be borne. That’s life!

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