Back in 2020, Zomato fired ~13% of its workforce.

Zomato was a well funded leading Unicorn at the time.

Surprisingly, it had built no resilience to handle a COVID like situation to keep its workforce

In 2022, we are looking at another wave of layoffs.

[1] Current crisis is creating both demand and supply side issues:

India is a net importer of Oil.

In fact 20% of our import bill is of Oil.

Now, no one knows till when the surge in Oil prices would continue.

But, this will definitely create very high inflation.

[2] High inflation & disruption in supply chain (due to Russia-Ukraine) will create multiple issues:

Supply side issues:

- Some industries (eg. Semiconductor) which are already stretched, will go belly up first.

- They won't be able to keep up with manufacturing.

[3] Demand Side issues:

- India could look at an inflation of 10% or more.

- This means that prices of everything will go up.

In fact some firms like HUL have already increased their product prices by 15-20%.

[4] Under such high stressed environment "leveraged" (high debt) firms go down first:

- 73% SME's didn't make any profits in FY21.

- These are the first employment engines of India.

- There is no reason why these will become profitable all of a sudden, now.

[5] When it comes to industries, there is another structural issue at play.

Production Linked Incentive (PLI) schemes are actually availed by big players, not small players.

Small players, like small nations have to fend for themselves.

[6] When industry goes belly up, startups go belly up too.

This brings us to the Zomato story.

Think for yourself, when Zomato a well funded startup had to cut 15% of its work force, how will other baby startups survive?

[7] The problem here too is structural:

- Most startups in India (Zomato in 2020), are not operationally profitable.

- They only way they survive is by raising the next round of funding.

They raise funds through fat investors.

[8] Fat investors are dealing with their own issues now:

- They have switched mode from "growth" to "defence".

- Startup investing is fun investing for them, till the time their core portfolio is secure.

Guess what? the core portfolio is not secure now.

[9] Is this the end of Bull run?

- Not at all.

- The roadmap is clear: leveraged firms will get shut, strong firms will survive, unnecessary funding/valuation game will dry up.

- Firms that will survive will make crazy money.

This is survival of the fittest at play.

Credits: Akshat Shrivastava