The Usual Suspect Behind Why Indian Startups are Firing More and Hiring Less

India’s startup ecosystem, once synonymous with rapid hiring and aggressive expansion, is entering a phase of recalibration. After years of hypergrowth fueled by venture capital, founders are increasingly prioritising leaner teams and specialised talent over large workforces. Recent layoffs and changing hiring patterns indicate that startups are not necessarily hiring less; they are hiring differently.

Data compiled by executive search firm Longhouse Consulting shows that Indian startups have laid off more than 4,800 employees since July last year, spanning fintech, edtech, gaming, and e-commerce. 

In February, home decor firm Livspace laid off 1,000 employees—12% of the workforce—as the startup pushes to become an AI-native agentic organisation. Last year, conversational AI company Gupshup reportedly fired around 300 employees ahead of its IPO plans. AI startup Krutrim, too, conducted layoffs across multiple rounds last year, as the company pushes for leaner and agile teams.

Some of it can be explained by the capital crunch. Indian startups were bullish about hiring in the earlier part of the decade, buoyed by record funding. In 2021, startups raised a massive $39 billion, according to Tracxn. This figure was quartered to a mere $10.5 bilion in 2025.  

However, founders and analysts say the current phase represents a structural shift in how startups build teams, one that increasingly favours AI literacy, cross-functional capability, and productivity over headcount.

Shifting Priorities

The funding slowdown has forced founders to rethink costs and operational efficiency. Instead of hiring large teams to support rapid expansion, startups are increasingly building smaller teams that deliver higher productivity through automation and AI-enabled tools.

Processes which once took months—from design prototyping to engineering implementation—can now be completed in significantly shorter timelines. “Now I'm able to turn this around in less than six months… or even three,” Rajashri Sai, Founder of ESG analytics platform Impactree Data Technologies, says, describing how AI-assisted development has shortened product cycles.

Priyanka Aeron, Co-founder and CEO of AI-powered marketing intelligence company Thrive Global AI, says the shift reflects a fundamental change in hiring philosophy.

“Companies are moving away from role-specific, siloed hiring toward leaner teams built around adaptability, analytical thinking, and AI fluency,” she tells AIM. 

In practice, this means startups are prioritising professionals who can combine technical expertise with business understanding rather than hiring large function-specific teams. “Startups today are not simply looking for larger teams; they are looking for smarter teams,” Aeron adds.

Lean Teams Powered by AI

AI tools are accelerating product development cycles, automating workflows, and reducing operational complexity. With technology doing much of the heavy lifting, startup founders now increasingly expect employees to operate across multiple disciplines. 

Thrive Global AI is also following suit. “Rather than expanding headcount rapidly, we have focused on building a highly skilled, AI-integrated core team,” Aeron says.

The company prioritises professionals who combine deep technical expertise with commercial understanding. “[We prioritise] individuals experienced in data modelling, automation frameworks, performance marketing analytics, and AI-driven product optimisation,” she explains.

This approach reflects a broader trend across the startup ecosystem: hiring people who understand how to leverage AI tools and interpret data insights. “Ultimately, the focus is on capability density over team size; building a lean, intelligent organisation equipped to lead in an AI-first commerce environment,” Aeron says.

Sai says hiring trends are evolving as companies rethink workforce structures and employee productivity. She emphasises that layoffs should not be seen purely as a crisis but rather as a “market correction” in how startups structure teams. 

The real shift is occurring in the kind of employees startups want to retain. “Those who are not reskilling themselves are being let go,” she explains.

Changing Structure of Startup Teams

Sai identifies a distinct pattern emerging within startups. Companies are actively distinguishing between employees who execute defined tasks and those who actively drive innovation. These “aspirational” employees, she explains, are often the ones companies try hardest to retain because they contribute across multiple areas of the business.

“These are the people who will push themselves… a [person] will be in product, they’ll go learn sales, they’ll learn marketing,” Sai observes.

Such employees are especially valuable in startups operating with leaner teams, where adaptability and initiative become essential.

Another major shift is the growing expectation that employees understand AI tools and workflows, even in traditional roles. “[In] every role we have insisted that you have to have an element of understanding of AI tools,” Sai says.

Startups are increasingly looking for specialists who understand how to integrate AI tools into everyday workflows.

Not All Sectors are Impacted

Despite layoffs in several sectors, some specialised technology domains continue to experience talent shortages.

Rahul Dwivedi, Founder and CEO of security solutions company Pelorus Technologies, says demand for cyber and forensic analytics talent remains strong.

“The trend you’re seeing in the wider startup ecosystem simply doesn’t apply to cyber, forensics, or analytics. If anything, our space has a talent shortage,” he remarks.

As cyber threats become increasingly sophisticated, organisations are investing more heavily in predictive analytics and digital forensics. “Criminals are weaponising new technology every day, which means the attack surface is constantly expanding,” Dwivedi says.

For companies working in such specialised domains, hiring remains aggressive rather than cautious. “Our 2026 strategy is aggressive growth, not reduction,” he adds, noting that building advanced analytics platforms still requires specialised human expertise.

Productivity Over Headcount

Ultimately, the hiring reset in Indian startups reflects a shift from growth at all costs to sustainable operations.

During the peak funding years, startups prioritised rapid expansion and market capture. Today, founders are under greater pressure from investors to demonstrate efficiency, profitability, and long-term resilience.

But that does not necessarily mean fewer opportunities in the startup ecosystem. Roles in AI development, data analytics, cybersecurity, and product strategy are expected to grow, while routine operational roles may decline.

In Aeron’s words, the shift reflects a broader transformation in how startups operate. “Hiring is becoming more strategic. Startups are building AI-augmented teams designed to deliver higher output with greater precision and agility.”

To make India an AI-first economy, adaptability and multidisciplinary skills matter more than ever before.