Flipkart-IIM Crisis: Pointing to Cracks in the Startup Ecosystem?

Are deferment of placements an indication of the larger saturation in the startup ecosystem in India? (Photo Courtesy: The Quint/Rahul Gupta)

In a country of 1.2 billion people, campus placements offer thousands of students the opportunity to carve out a name for themselves. Quite like the proverbial pot of gold at the end of a shiny, hope-filled rainbow.

Which is why when Flipkart pushed its joining date for new recruits from June 2016 till December 2016, students in B-schools across the country felt cheated. Eighteen students from Indian Institute of Management (IIM), Ahmedabad had their placements deferred, and the backlash was immediate. In another incident, L&T Infotech has cancelled offer letters given to 1,500 students in 2014, alleging that their performance was not up to the mark.

Logistics startup Roadrunnr has asked its recruits to join in December, along with startups such as InMobi, CarDekho, and Hopscotch who have all joined the deferral bandwagon.

Most startups have given specific reasons for reneging on their placement offers or delaying them. But beyond the specific ‘why’, this incident should be seen in the larger context of the possible cracks in the startup ecosystem in India.

An ecosystem where market euphoria is a thing of the past, venture financing is not flowing in as easily, low valuation for e-commerce giants is not unique anymore and fledgling startups are folding up with alarming regularity.

Just a Change in Hiring Plans or Sign of ‘Saner Times’?

After a period of euphoria, there is a ‘market correction’ in the field in the startup ecosystem. (Photo Courtesy: Stockwits.com)

Are deferment of placements an indication of the larger saturation in the startup ecosystem in India? For any startup, when venture financing starts to dry up, product marketing is affected as spending is pulled back. The second in line is a focus on team size and less aggressive hiring.

This is why some experts and entrepreneurs within the startup ecosystem say that the current IIM-Flipkart crisis is an indication of the startups’ increasing dependency on venture financing. Especially Flipkart, who is still largely dependent on venture financing, according to sources.

The Flipkart-IIM crisis is definitely an indication of the current market sentiment. Today, top 5 commerce companies occupy nearly 80% of market share. And to sustain themselves, they would need ten times the capital next year. Which amounts to billions of dollars that venture financing cannot sustain. The market is correcting itself. It’s not a bubble, exactly. But a sign of saner times, I would say.

Bharat Sethi, Founder and CEO, PosterGully 

Also Read: Flipkart Devaluation: What Does it Mean for Startups & E-commerce?

But for some, the trend of startups reneging on the their placement offers is nothing more than a change in hiring plan.

There was a change in hiring plan in Flipkart. The only thing this indicates is that Flipkart is hiring less aggressively. There are always changes in a startup. It is a mistake on IIM’s part to treat it as an established company. I don’t think there is a trend. 

Kashyap Deorah, Co-founder, HyperTrack and Author, Golden Tap

Why Flipkart Deferring Placements Is a Big Deal

The official statement from Flipkart stating that the delay in placements is due to restructuring of its campus program. The new recruits will be paid an additional bonus of Rs1.5 lakh. (Photo: Screen grab/Official Flipkart Blog)

On paper, the gap between June 2016 to December 2016 doesn’t seem like a lot of time. So, what’s the brouhaha about?

For most recruits involved, the offer letter is usually given in late 2015. In these months, students lose their salary and have to contend with rising EMIs on educational loans they took for paying for B-school. And the ambiguity they face when their offers are deferred (or worse, cancelled) doesn’t help either.

Also Read: L&T Does a Flipkart: 1,500 Jobs Cancelled, Students Go On Strike

I received a letter of intent in late 2015, and was supposed to join Flipkart in June 2016. But, there is ambiguity on whether even in December, I would be able to join. Most banks have one or two months moratorium to pay back loans. I don’t have loans, but for my other friends, it is a problem. 

Management Graduate whose offer has been deferred by Flipkart