Start Up Layoffs

What does US FED increasing interest rates have to do with rise in start up layoffs in India. Some one please explain? more  

The pros and cons of a startup in India: - The startups in India, since the early 2000s, took shape based on a number of innovative ideas. They have boosted positive sentiments for the new generation as well as the economy. - A factor which has pushed the younger generation in the startup direction is the lack of availability of ample jobs in the market. On the positive side the younger generation is getting the experience to run a business but on the negative side this high risk endeavor can result in a large number of failures. - There is a big cultural difference between the Silicon Valley (US) and India. The failed dot-com entrepreneurs in the US were absorbed back in the job workforce quite easily and some of them tried the entrepreneur path again at a later date. The job market in our country does not accept such failures back in the job environment easily. The overall environment in Silicon Valley is much more conducive not only in terms of culture but also in terms of experienced mentors, available infrastructure, etc. – it is much more difficult in our country. - There has been a infusion of large amount of funds in the economy due to the startups and some of them now command unthinkable valuations. To survive, these startups need to be aligned to the dynamics of the marketplace – majority of them are concentrated in the highly competitive e-commerce space. - Venture Capitalists (a large proportion are FIIs) expect high and quick returns on their investments in startups. The food delivery startup TinyOwl was forced to fire 300 employees to drastically cut their operations costs to meet the VC expectations. There are other examples of this startup deflation e.g., Zomato, Housing.com, etc. If the US Fed hikes interest rates after their review meeting on 15-16 December, it could result in the FIIs to pull out some of their funds in the Indian startups and we may hear (I hope not) of more startup shutdowns. There are many factors which can contribute to startup failure e.g., inability to generate their own funds (revenue) before the VC funds get withdrawn, strong competition, launching a startup idea at the wrong time, etc. On an optimistic note, I would expect more successes in the future after we have learnt hard lessons from the failures in the current wave. more  
Thanks Mr. Rajeev Arora for your good posts/comments on this special topic on which I am not an expert. Perhaps for my and others knowledge, you may like to enlighten us with your rich experience in senior positions in corporate as to how start up bubble has peaked, heading towards deflation and how it can be arrested. more  
Yes, the interest rate hike is not expected to be more than 0.5%, if any. The startup layoffs got highlighted because of large layoffs by TinyOwl (a startup). Majority of current startups are at a stage in their lifecycle where they are not profitable. VCs (venture capitalist) which includes a lot of FIIs at this point get impatient with quick returns on their investment and any FED hike will have an impact on funding in India. The Indian startup bubble at the moment has peaked and it is heading towards deflation and any funding pullout at this stage will have a more pronounced impact. The Silicon Valley startups learnt hard lessons during the US Dot-Com bubble burst in 2000 and the Indian startups could be heading in a similar direction - I hope some of them, at least, take some corrective actions in time. more  
True, But the effect is not likely to be more than 0.5%. Will have more effect on start ups, based on FII on loan instruments and less in equity investments, lay offs in India. more  
Launching a startup is high risk but it can also give high returns. The FIIs from US have invested funds in a number of Indian startups with the expectation of high returns in the short term. If the US FED in their next quarterly review meeting on 15-16 Dec raises the interest rates it will result in FIIs pulling out a lot of their funds invested in India (equities, startups, etc.) as they will start getting better returns back home. Any Indian startup which is still not profitable on it's own and dependent on the money flow from these FIIs could shut down. more  
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