India’s startup ecosystem exposes the harsh reality of the vast wealth gap between founders and their employees, revealing the dark side of entrepreneurial success and shattering dreams.
“Your founder just bought a 12-crore villa, I read in newspapers. I can only imagine the work culture and perks you must be used to,” said a laid-off startup employee, recounting a recent job interview. She expressed frustration, “They’ve slashed our salaries by 30-40%, creating a smokescreen. And with the founders flaunting lavish lifestyles on social media, battling this perception is tough.”
During the startup boom, headlines buzzed with stories of startups giving luxuries like Mercedes cars, high-end work-from-home setups, generous ESOPs, and liberal leave policies. Yet, as funding cools and reality checks on business models and product-market fits set in, a tightening of belts is expected.
However, my conversations with over a dozen startup executives and employees reveal a painful disillusionment. They are aware of the challenging business conditions, but the lavish lifestyles of some founders expose a tragic contradiction.
In one world, startup founders live like royalty, showcasing their wealth and success. In another, their employees struggle with tight budgets and job uncertainty, their careers overshadowed by sudden job cuts and late pay or no pay.
Echoes of Whitefield
In Bengaluru, the Adarsh Palm Retreat (APR) stands as a symbol of the luxury many startup founders live in. A visit to this gated community by an employee of a SaaS startup revealed a completely different world. “Walking around APR, the extravagance was palpable. Lavish homes, grand parties – it was a display of luxury at its peak,” the employee recounted.
This employee, once an executive at one of India’s largest e-commerce startups, visited APR to meet the founder to receive instructions on cost cutting.
As he spoke, I remembered my visits to the complex over the years, and I could pick several instances of feeling the harsh contrast between some founders’ lifestyles and the employees.
As flagged in my column “Byju’s – When Ambition Overrides Good Governance And Ethics” earlier this year, the governance crisis at startups such as Byju’s makes this even worse. In 2022, when Byju’s announced it was one of the sponsors for the FIFA World Cup, the company followed it up by laying off around 4,000 employees. The reason? Path to profitability.
While some founders have notably reduced their salaries or stopped taking them, this gesture can sometimes be an eyewash. One employee pointed out, “They’ve already secured their fortunes from Series A secondary sales; they don’t need a monthly salary!” This disparity between the founders’ opulent lifestyles and the austere measures their companies face raises critical questions about leadership and responsibility in the startup world.
Disparity in Despair
Another employee from Bengaluru shared a glimpse into her company’s Slack group, “The founder invited a select few to his extravagant housewarming. Five-star caterers, private concerts – a week after they fired 100 of us. Some of us, still in the group, find it painful to witness.”
A third employee, currently on maternity leave, shared her anxiety, “My leave ends next week, and I know I’ll be fired. It’s a constant worry.”
A front-end engineer from Delhi shared a disheartening story. Weeks before her entire team at a luxury services startup was laid off, the founder shared a screenshot of the company’s bank account, assuring enough funds for a year’s salaries. “We have the runway!” he claimed. Yet, shockingly, they were all terminated, receiving only a month’s salary. “We later heard that the screenshot was photoshopped,” she revealed, still reeling from the betrayal as she searches for a new job.
An employee from Dunzo, backed by giants like Google and Reliance Retail, shared his struggles of managing life without a salary for months. “I wish they’d just fire me. It’s like a slow, painful bandaid removal,” he lamented. His recent job interview at a traditional logistics company became a critique session on startup culture. “The interviewer, a seasoned executive in his fifties, vented his frustration about startups, including Byju’s,” he recounted, highlighting the growing disillusionment with the startup ecosystem.
These anecdotes capture the disconnect between the founders’ opulent lives and the harsh realities faced by their employees, reshaping the narrative around startup culture from one of benevolent demigods to questionable villains.
In Bengaluru’s residential areas like Whitefield, voices of discontent can be heard about figures like Byju Raveendran, Bhavish Aggarwal of Ola, founders of Dunzo, and many others, contrasting sharply with the optimism in cafes where VCs and founders buzz with pitches and interviews. A different reality exists in the apartments, painting a stark picture and reshaping the narrative about startup leaders.
Of Unicorns and the Zombies
To be sure, the issues plaguing Indian startups and their founders are not unique.
The New York Times article from December 7, 2023, reports on companies like WeWork, Olive AI, Convoy, and Veev, which, despite substantial investments, faced bankruptcy or shutdowns.
In India, similar trends have manifested, with startup founders maintaining extravagant lifestyles even as their companies undergo layoffs. This is comparable to instances in Silicon Valley, where founders’ personal expenditures often contrast sharply with their companies’ financial challenges. For example, Bird, a scooter company, faced delisting from the New York Stock Exchange due to low stock prices, while its founder purchased a multi-million dollar mansion.
However, there are differences in how these trends manifest in India versus regions like Silicon Valley. In India, the startup ecosystem is often characterized by a more pronounced disparity between the founders’ wealth and the employees’ economic challenges, partly due to the country’s socio-economic diversity. In contrast, though facing similar issues, Silicon Valley’s ecosystem operates within a different socio-economic context, where such disparities might be less visible.
The tremors shaking the foundations of India’s startup landscape in 2023, as reported by Debarghya Sil for Inc42, paint a vivid picture of an ecosystem transforming. This year, a clutch of Indian unicorns, once the darlings of investors, battled severe valuation cuts, a clear sign of the changing tides.
Consider BYJU’S, the edtech behemoth that, as of March 2022, boasted a towering valuation of $22 billion. Its fortunes precipitated when key investors, including BlackRock and Prosus, slashed the value of their stakes, halving BYJU’s valuation to a mere $11 billion. The downward trend continued, with Prosus marking down BYJU’S to just below $3 billion, a stark contrast to its former glory.
Swiggy, another Indian unicorn, also faced the cold reality of the funding winter. Initially soaring to decacorn status in early 2022 with a valuation of $10.7 billion, its worth soon declined by 48.5% from its peak. The food tech major’s journey from a high valuation to a notable markdown highlights the broader sentiment shift among investors.
PharmEasy, struggling under financial duress, experienced similar markdowns. Its investor, Neuberger Berman, reduced its valuation to $550 million from a peak of $5.6 billion, erasing the unicorn status.
These instances are emblematic of a broader narrative unfolding across the Indian startup ecosystem. The year 2021, with its record creation of 44 unicorns fueled by a whopping $42 billion investment, seems like a distant memory. The onset of global economic headwinds in the following years has led to a recalibration of values and expectations. Investors, once eager to pour funds into promising Indian startups, are now reassessing their portfolios, prioritizing sustainability over rapid growth.
This recalibration in India mirrors a global trend where tech startups, once buoyed by easy funding and sky-high valuations, face a harsher economic reality. The narrative shift from high-growth to sustainable business models reflects a maturing ecosystem, aligning more closely with global market realities.
How did this happen?
Illusions and Realities
Let’s imagine the life and work of an entrepreneur.
You have crafted the ideal startup concept, secured initial funding, and propelled it into the elite unicorn or even decacorn club – companies valued at $10 billion or more. This is a plausible notion, especially considering India’s startup landscape. As of mid-2022, India boasted 105 unicorns with a combined worth of $338.5 billion. The digital boom, fueled by a robust digital payment framework, widespread smartphone usage, and digital-centric business models, has spurred this growth, with the years 2021 to 2019 seeing a remarkable increase in unicorn births despite the pandemic’s challenges.
However, India’s burgeoning startup ecosystem, the world’s third-largest, also harbours numerous failures. For each success story, many ventures initiated by ambitious entrepreneurs initially showed promise and even secured funding from angel investors or venture capitalists, yet ultimately fizzled out and vanished.
But the fall of some startup founders from dream-makers to heartbreakers is more because of the luxurious lives they are living despite the employees being laid off and all the cost-cutting measures. By allowing entrepreneurs to make massive cash as part of their secondary share sales, the VCs have contributed to this, too.
Last week, over coffee just outside the lush confines of Adarsh Palm Retreat (APR), I had a revealing conversation with a startup founder who once called this enclave home.
“I cashed out my shares for about $2 million during our Series A,” he began. “But now, our biggest investor is pressuring us to slash the company’s size by three quarters. There’s money in the bank, yet here I am, grappling with decisions that seem inappropriate to me and the team I’ve built.”
“The same investor is betting heavily on a rival startup, urging them to expand aggressively,” he revealed, his frustration visible. “It’s a game that defies me. Everyone assumes I’m wealthy and carefree, but the truth is, I wrestle with mental depression every day.”
Notwithstanding founders’ internal battles, mental depression, investor pressures, and everything that comes along, it’s difficult to believe they can’t do better.
In their pursuit of valuation and victory, did they forget the people who built their dreams? How will history remember them – as visionary leaders or architects of disillusionment?
(Pankaj Mishra has been a journalist for over two decades and is the co-founder of FactorDaily.)
Disclaimer: These are the personal opinions of the author.
