Startups trim team size to woo investors

The less, the merrier – that’s the mantra in the startup and venture capital space, where there’s an increasing shift towards building smaller teams. More investors are now also considering the size of a startup’s team while weighing potential funding – it is not a big determining factor yet, but at least it is a metric being considered, with the ‘revenue per employee’ metric making its way into investor discussions.

AI has a part to play in this shift – the tech is not leading to wide-scale job reductions, but it certainly is eliminating the need to hire more, and nudging companies to redeploy human capital towards more complex tasks.

“Investors have become intensely focused on startups that demonstrate capital efficiency and a high revenue per employee ratio. The excesses of the last funding boom, marked by aggressive headcount growth has given way to an era where impact is measured by output, not team size,” Manu Iyer, general partner at Bluehill VC, which funds early-stage startups, told TOI, adding that, on average, today, series A (early stage) startups globally and in India come to market with fewer full-time employees.

Even as startups as big as Paytm and Ola are betting on AI to cut inefficiencies at work, the trend of building smaller teams is more rampant among deep tech and AI-native startups. “…one emerging benchmark is $1 million ARR (annual recurring revenue) per employee. This wasn’t even a talking point a couple of years ago, but now…it’s becoming a sign of capital efficiency and strong product-market fit. Investors are increasingly asking not just about growth, but about productivity per headcount,” said Neelabh Shukla, chief business officer at talent solutions provider Careernet.

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