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Is It Time To Say - RIP Startups?

Is It Time To Say - RIP Startups?
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Not very long ago, placement cells in B-schools and IITs were flying high in glory of startup growth in India. Students wanted to get onto the lucrative ‘Startup bandwagon’, hoping of being future entrepreneurs. Literally some 365 days ago, it seemed like a win-win situation. The story, as we see it now, is different. It is not a hidden fact that 2016 has seen a massive downturn, investments has declined, valuations have been lowered and companies have shut off operations- completely or partially. Fundraising cycles have become longer and difficult, especially at a series-A level. Fact is - the eco-system is going through a major correction. Even amid uncertainty, is it justified for write-off startups? 

The signs of ‘turbulent times ahead’ were visible from October last year. Though it is impossible to predict the future, gauging trends is possible. Did IITs and IIMs not keep a track and inform students?

The e-commerce space, which is expected to grow to $50 billion by 2020, is also one of the leading recruiters from IITs and IIMs.

What’s happening here?

It all started with a tussle between IIM-Ahmadabad and Flipkart. The e-commerce giant has deferred the joining of IIM-A graduates that it hired as trainees, who were supposed to join the firm from June, however now they will have to wait till December. After seeing the future of 18 of its students in limbo, IIM-A send a stinker to Flipkart, saying, “Talented students fresh out of campus, on the eve of starting successful careers, feel cheated”.

Two other online portals CarDekho and Hopscotch have also postponed joining dates of students they recruited from IIM Bangalore.

A weak defense?

In its defense, Flipkart said it was a tough decision to make and they’ve been working on ‘restructuring business and looking for more balance’. The firm also said it will pay an additional joining bonus of Rs. 1.5 lakh to all campus recruits. It has also offered internships for campus recruits at other startups for a monthly stipend of Rs 50,000.

IIM-A has dubbed the offer as ‘utterly unacceptable’, saying the delay should be shortened and jobs guaranteed. A total of 45 students from IIMs have been affected. In its defense, InMobi says they had deferred joining of a few graduates as the senior leadership is busy focusing on core revenue priorities.

“There is a small portion, we have deferred them by few months but most of the other MBA, engineering grads have already joined us. Quality matters more than quantity for us. Delaying the campus hiring by a few months does not really affect how that individual will be treated post they get inducted into the company. This is a passing phase. While it is hard, students need to look at it more objectively, be alive to the reality of the situation,” says Arun Pattabhiraman, Vice President & Global Head of Marketing, InMobi.

Recently, at a meeting in Mumbai, central placement team of all IITs decided to blacklist six startups that went back on their word to hire their graduates.

Honey, it’s all about the money!

The impending question is – are students opting for safer MNC jobs and ditching startups? According to Professor Ganesh Prabhu, Chairperson, Career Development, IIM Bangalore affected students are disillusioned and looking for bankable options. Interestingly, Flipkart’s competition, Amazon is trying to lure the affected students and getting them onboard.

“Amazon has been a major recruiter here (at IIM Bangalore). There are few students who have opted for Flipkart in the lateral placement process, which happened before the final placement. Students are looking at what other options they have. Some are willing to go to other companies at lower salary also.

Considering India is Amazon’s fastest growing region, it has plans to invest additional $3 billion in the country. Typically, an early stage can never come to campus as IIMs look for well-funded companies. They want talent, but cannot pay the high salaries that graduates demand after being linked with the IIT or IIM stamp. Students are also under social and personal pressure, if they don’t have a job.

Talking about CarDekho, Prabhu said he did not see a big problem there.  “CarDekho has asked three of our students to join in September; they are basically relocating their office.”

He also said that one of the students from IIM-Bangalore has opted to go back to his family business or join Flipkart when the opportunity opens. Trust lives on!

Knee-jerk reaction?

Gaurav Tandon, Co-founder, Yummade has been on both ends of the spectrum. He graduated in 2005 from IIT-Bombay and was the student placement coordinator at the time. Now, 18 months into his food-tech startup, he suggests correction within the placement cells.

“The problem is that - placement cells in campuses are not very mature. The blame is passed on to the companies. The situation needs to be handled better by the campus. The campus is basically trying to say – there was a problem externally created by these companies, we are basically telling you that you should look for safer jobs and get into industries which are much more stable. This is a very reactive kind of a measure.”

One cannot deny that there has been a lot of funding flow into some startups who have been able to raise a lot of capital. However, most of them have been unsuccessful in deploying it in the most efficient manner. Mindless, aggressive scaling has its repercussions. This partly explains why so many companies have shut down operations, affecting recruitments.

Not willing to be named, an IIM graduate said that lots needs to be done in terms of career coaching. “Sometimes, there is no one to educate us about the pros and cons of joining a startup, aspects of high-growth environment, responsibilities, high-risk, high-reward scenario etc.”

Elephant in the room

The big question remains – have startups lost to MNCs? Truth of the matter is that the market is fluid and needs time to recover. Investors are getting cautious; they are getting into details of a startup, from unit economics to strategic growth, et al. Following the uncertainty in the market, startups are now realizing the importance of knowledgeable investors. There is a lot of correction that is happening in the market, not only in India but globally. For students, who are on the threshold of starting their careers, the tide is high and a lot is at stake. The next six months are crucial for the startup eco-system. It is time to give them room to breathe before writing their obituary. For now, the war between ‘safer MNC jobs’ and ‘risky startups’ is on.

Edition: December 2016

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