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Economy

As venture capital dries up, online companies resort to layoffs

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2016-08-30 08:51Global Times Editor: Li Yan ECNS App Download 

Over the last 12 months or so China's once-booming Internet start-up industry has gone from burning through capital with reckless abandon to cutting back on customer subsidies and laying off employees. The seemingly never-ending flood of venture capital that allowed companies such as beequick.cn to spend, spend, spend to secure market share has since dried up. Industry insiders say it's all part of the boom-bust business cycle, in which uncompetitive and unscrupulous companies will fall by the wayside. Some experts also see a lesson in the downturn: It's best to focus on your core business and not expand blindly.

Winter has come early this year for Xiao Tian (pseudonym), a regional manager of Beijing-based offline-to-online (O2O) food and drink delivery start-up beequick.cn.

Xiao, in his mid-30s, got laid off on a rainy night in Beijing on Friday.

Before leaving, Xiao had a four-hour talk with the company's founder, Zhang Ying. "It was probably the longest conversation I had in my life," Xiao told the Global Times on Saturday.

Xiao said he had close relationship with Zhang, intimate enough that he refers to the company's founder as "big brother."

The two men had weathered the company's early challenges together. However, after working for the tech start-up for almost two years, Xiao's time with Zhang had come to an end.

"My brother was cornered and out of options," Xiao said.

In September 2015, Beequick received $70 million in its third round of fundraising, according to news portal sohu.com. Less than a year later, the money was gone, and Beequick couldn't secure new funding.

As of March 2016, the two-year-old O2O start-up has dismissed 400 employees in its purchasing and sales department, or 36 percent of its total staff, according to a report on the news portal 36kr.com.

"I feel lost," Xiao said. "This year, the Internet industry is in a downturn. I will probably have to take a pay cut to find a new job."

And it's not just Beequick's problem. The clock is ticking for many Internet start-ups. The Beijing-based mobile office solution provider Fxiaoke has also laid off 500 to 600 of its sales and marketing staff, or about 20 percent of its total employees, said a company employee who preferred not to be identified.

Even the most successful Internet start-ups, or unicorns, are looking to slim down.

After merging with Dazhong Dianping, Meituan, a household name in the online takeout business, has hatched a plan to eliminate a significant portion of its sales staff, according to 36kr.com. By some estimates, more than 1,000 employees will lose their jobs if the plan is put into effect.

The layoffs show that tech start-ups are stepping up efforts to survive the "capital winter," said Liu Dingding, an independent industry analyst in Beijing.

Liu said the change happened from late 2015, when a group of start-ups adopted a strategy to cut marketing expenses and reduce customer subsidies.

"This was followed by cutting operations that didn't contribute to their core businesses," Liu told the Global Times on Thursday. "Laying off employees is a last resort."

Funding dries up

In the first half year of 2015, the central government put forward its "mass entrepreneurship and innovation" and "Internet plus" plans, and China's tech companies, especially the O2O service providers and mobile application developers, were there to reap the benefits.

Venture capitalists and private equity firms poured billions of dollars into tech. In the first half of 2015, Web firms received $6.57 billion in investment, more than double what they got in all of 2014, according to a report published by PricewaterhouseCoopers.

  

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