Start-ups shaky, biggies are back: 2022 recession reverses decade-long trend

For Indian start-ups, 2022 has not been good year. Global slowdown is being seen in the form of lay-offs and cost-cutting measures by start-ups as well as restructuring of businesses around growth areas resulting in further downsizing.

Start-ups enjoyed a bull run in the last decade with record highs across the board. However, with COVID-19 and oil wars escalating, the markets took a turn for the worst. Many believe that this could mean an upcoming recession or downturn that has been forecasted years ago.

Also read: As markets bite, job cuts at Indian start-ups reach alarming proportions

The situation was the opposite following the 2008 recession. Large, established corporate employers fell out of fashion as they seemed stuck in a cycle of perpetual layoffs and restructurings. Tech start-ups were the place to be for new generations of workers, says a Mint report. There were more than 15,000 tech layoffs announced in May.

Start-ups trading below listing price

In 2022, the situation has reversed. The outlook for start-has ups become shakier and the time is good to go work for a big company.

After a decade-long boom, most tech-related start-ups that went public in the past two years now have stocks trading below their listing price. But, in the broader labour market such a weakness is not seen. The US economy added 390,000 jobs in May, buoyed by strength in industrial sectors, white collar jobs and an improvement in government hiring, the Mint report says.

While some start-ups will succeed regardless of the state of the economy, many are still in need of more time and money to develop their business. In a downturn, one of the first things expected is start-ups getting less funding opportunities in the market, especially for early-stage ones.

Meanwhile, conventional corporate employers have been steadily increasing their pay and benefits over the past decade to be more competitive with Silicon Valley.

Changing demographics

The demographics of the workforce that can choose between jobs at either start-ups or big corporate employers have also changed since the early 2010s, the report says. That wave of young 20-something millennial workers a decade ago are in their 30s now. Getting paid a higher, stable salary rather than in stock options, and having health-care plans becomes more appealing when you’re heading into middle-age.

Also read: When funding takes precedence over governance, start-ups go bad

When you put start-ups and recessions together, the first thing you usually assume is a whole bunch of negative things due to risk and volatility. But the start-ups that have the runway are realising that now is the time to focus more on unit economics, sustainable scaling-up and business fundamentals.