# Cheap capital, overhiring and the layoff cycle

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# Cheap capital, overhiring and the layoff cycle

Restored from Instagram stories · 18 January 2023

so, we were supposed to go under recession before covid started. covid somehow delayed it and more money was pumped into the system to avert a disaster and more money went for relief.

so when interest rates were close to zero, it was the period of boom. companies were getting funded left and right. huge insane valuations. most of them were often funded without proper due diligence.

and that's when the hiring frenzy started (even to the point HR tech companies were funded at crazy valuations)

1. work from home became fancy. companies encouraged it because they were cutting down costs and have a lot of money in the bank.

2. with close to zero interest rates, startup companies started hiring the best - thinking they should steal the best employees for themselves and paid insane salaries.

(the companies weren't paying the salaries themselves. they only paid a little and passed the rest as RSUs or stocks which are annually paid by the investors. the investors didn't mind footing the bill since their valuations were multiplying in double digit x's with each raise)

that's why the insane comp. happened.

3. this was the time service companies were facing massive attrition rates, some even upto 40% because all of them were moving towards high paying product company startups.

4. service companies also now started offering insane joining bonuses, and big fat fees to retain more employees, especially the middle level employees resulting in the triangle looking bloated like this. (credits: my chief of staff @javinchugani)

![Hand-drawn staffing pyramid with a widened middle layer](https://thejasonsamuel.com/assets/instagram/staffing-bloated-crop.jpg)

Diagram credit: Javin Chugani, as credited in the original story.

5. so when cash started drying up, the real recession long pending started coming back. it wouldn't have been worse like this had it come before.

6. in startup world, investors are no longer willing to foot the bill for RSUs because there's no next raise that's happening. no insane valuations. VCs do not have returns like it should.

now, in the startup world everytime a startup has to raise a downround (in a lesser valuation) or if it can't raise another round, it requires human sacrifices. they force the CEOs to fire most employees, sometimes they fire the CEOs, launch inquiries etc.,

the fault for this lies on bad CEO ing.

everyone as soon as they raise think they need to expand fast. hire more devs. increase their count fast. become big. that's what they want to be instead of focussing on the product in hand.

7. to build an effective $1M ARR (annual recurring revenue) tech startup, the most effective top tech startup has < 20 people in their team. (upto 50 is excusable)

bad CEOing will have 100 to 150 people before their startup raises their series A. if you are looking to work in a startup, see this metric and stay far. it's a red flag.

8. so now, with plenty of available resources and less projects incoming, service companies went back to trimming their pyramid back to this.

![Hand-drawn staffing pyramid after reducing middle management](https://thejasonsamuel.com/assets/instagram/staffing-trimmed-crop.jpg)

9. in service companies most HR teams on contract whom they don't need or bloated HR teams will find themselves getting axed first (holds true for product companies as well which hired rapidly) along with most of the mid-management.

everyone whom they paid more will get axed. so if you recently made a jump and got a big hike stay aware. if you find yourself not having much work to do in campus, expect to get axed soon.

but you will still see companies hiring freshers (let me know if there's any impact on covid batches. yet to track them) because they can afford to hire freshers now, train them and replace them in places of people whom they paid a fat fee before.

10. the most fanciful position in tech that would get axed is the product manager role. once touted as a very coveted title, it's too hyped to the point i see more PMs than actual devs at some startups.

any startup who hire PMs before series B to find product market fit deserves to get destroyed since it's the role of the CEO/founder to do that.

now you know pretty much why layoffs are happening.

undoubtedly bad. all result of bad CEOing and leaving hiring decisions at the hands of a hiring manager instead of doing it by yourself and reviewing each.

do you want to me keep ranting ?

if you are earning 25k INR and above, you are at top 10% of income earning people in India. that means the amount of people who have disposable income is literally so low.

ask yourself then why are so many consumer startups valued at insane proportions ?

with the advent of UPI where spending friction is so much reduced, people are spending like crazy without enough to save.

most of India's economy during past global crisis remained largely safe and not heavily affected because they saved a lot of money and in gold.

they didn't put their money in stocks as before. look at this crazy stat.

India had around 40 million demat accounts by March 2020. then covid started. (read the money boom as before)

more fintech influencers who are jobless now and are available fulltime propped up in social media.

demat accounts raised to over 100 million by sep 2022.

we don't have that much disposable income when you see the stats of those who are earning.

with high returns given by the money boost during covid by companies, more and more people started investing.

and you think we won't be affected ?

there's a huge income disparity in India. we increased a lot of spending. so all economic stats will look like we are growing while we are literally draining ourselves.

now markets are crashing.

all tech stocks crashed. you can read the reason in previous sections. people lost money.

do the same formula for crypto too added along with the high scams that happen there. peace

you're figuring out only now? i already said this year is the year of acquisitions

but the affected ones will be employees who are rarely absorbed. the founders get paid for equity and investors do a grumpy exit because of no IPO.

forgot to add this will be another reason for employees getting laid off.

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