[YS Exclusive] WestBridge-backed Yellow.ai lets go of over 200 employees

Yellow.ai has let go of at least 200 employees since August after slower-than-expected growth in newer markets left the conversational AI platform with a bloated workforce, several sources familiar with the developments told YourStory on condition of anonymity.

Two of the sources indicated that the job cuts at Yellow.ai, which is backed by marquee investors including WestBridge Capital, Sapphire Ventures, and Snapdeal and Titan Capital co-founder Kunal Bahl, could be as high as 250.

"We had to reorganise some of the teams to double down on high-priority, high-growth areas, which in turn has affected 15% of the company," said Yellow.ai in a statement late Wednesday. The company blamed the "global macroeconomic conditions" for the "hard decision". The full statement by Yellow.ai is at the end of this article.

The San Mateo, US-based startup had about 1,000 employees at its peak and has so far shed the jobs over four rounds in August, November, December and January-February, according to the sources. A majority of its employees work in India.

“They want to focus on regions where they are already doing well–India and some Southeast Asian countries. Their focus to expand in the US will continue,” said one of the sources who is an ex-employee. “They have scaled down operations in Latin America, Africa, Europe and the Middle East.”

The sources allege that Yellow.ai forced the employees to sign non-disclosure agreements, which ban them from speaking to the media and others about the job cuts.

“It’s a very silent process they are running through,” said a source who is privy to the internal happenings at the company. “They could have just come out in the open and said that they are laying off and asked for the help of other organisations.”

The sources said 40-50 employees were let go in August, which was followed by the biggest round of layoffs in November when over 100 people were asked to leave.

“In November, they laid off over 100 people… In the all-hands (a company-wide meeting), the CEO said this would be the last... Within two weeks of saying that, they started calling people personally to let them know that they had been laid off,” said another ex-employee impacted by the layoffs.

Around the same time in November, Yellow.ai’s public relations team sent a note to YourStory saying that the company was planning to increase its employee headcount to over 1,000 by the end of 2022 and “exponentially expanding” across Australia, Africa, Japan, Latin America, the United States, London and European markets.

Earlier, in October, Yellow.ai rolled out an employee stock ownership plan worth $43 million across its global workforce.

Founded by Raghu Ravinutala, Jaya Kishore Gollareddy and Rashid Khan in 2016, the software-as-a-service company enables enterprises to deliver human-like interactions to their customers over the phone, WhatsApp and Google Business Messaging, among other platforms.

To Resign or not

A few former employees said they were called for a meeting by their manager, where an HR representative was also present, and told that they were being let go. They were asked to write resignation letters “to make it look like it was not a termination”, according to a couple of sources.

The company, in its communication to its employees has been citing non-performance and business optimisation as the reasons for letting people go. This includes those who were just a few weeks or months into their jobs.

“It takes a few months to understand the product and there’s a learning curve. Asking people to leave a few months after joining just doesn’t make sense,” said a former employee, who, like the others quoted earlier, did not want to be identified.

Conversations with multiple sources indicate that Yellow.ai has been cutting jobs across functions, teams and levels. One main reason for the cuts is its inability to scale up to targeted levels in the recent past, especially due to Yellow.ai’s global expansion plans not taking off as planned, according to the sources.

“They didn’t have any planning or structure in the region that we were supposed to work in,” said one of the sources quoted above. “They didn’t have any marketing spends and wanted us to go all in with ridiculous targets.”

Sources suggest that instead of getting a small team, the company “overhired” in markets such as the United States expecting to grow aggressively. However, things didn't go as planned and the worsening macroeconomic conditions didn’t help.

Yellow.ai’s main business is heavily reliant on India and some Southeast Asian markets and it has been looking to expand its footprint to markets including Latin America, Africa, Europe and the United States.

In a September 2022 interview with Nathan Latka, Founder and CEO of SaaS financing company Founderpath, Yellow.ai’s Ravinutala said the Asia-Pacific region accounted for about 90% of the company’s customer base and 70-80% of its total annual recurring revenue. Typically, SaaS companies get lower margins from the APAC region than what they would in the United States.

The company’s ARR—a key metric SaaS companies track to figure out revenues expected from existing contracts over a 12-month period—couldn’t keep pace with increasing employee and sales and marketing costs.

“The typical SaaS gross margins, which you expect to be upwards of 60-70%... a lot of these companies (not just Yellow.ai) will have a challenge around that,” said an investor who has backed several SaaS startups, declining to be identified due to the sensitive nature of the topic.

He added that companies operating in this space have seen their marketing costs rise, especially due to cut-throat competition. Also, lower annual contract values and bloated sales and marketing did not help Yellow.ai’s cause, he said.

Ravinutala said in the Latka interview that Yellow.ai still had 90% of the capital raised from its previous round in the bank. In the company's latest Series C funding round in August 2021, the startup raised $78.15 million from WestBridge Capital, Sapphire Ventures, and Salesforce Ventures, among others. Overall, it has received $102.15 million in external funding.

Yellow.ai's full statement on the layoffs

"The global macroeconomic conditions have led to a strong shift in the market context, and due to the receding tailwinds, we had to take the rather hard decision of reorganising ourselves in November last year to stay sustainable. While we have seen business grow over the last year, we have had to tone down our expectations and make significant changes across functions to continue building on our efficiency. We had to reorganise some of the teams to double down on high-priority, high-growth areas, which in turn has affected 15% of the company. 

The reorganisation and consequent exits were carried out in two phases between November and January. The separation was announced through company-wide communication, in an email from the CEO to all employees, multiple town hall meetings, and one-on-one discussions and counselling were held with the impacted employees. Our Yellow Tribe has always been our priority, and this has been the toughest decision for us as a company. We are deeply committed to helping and supporting our impacted colleagues in every manner possible. The impacted employees were offered severance benefits along with assistance for career support, health benefits, mentoring by the leadership team, and access to courses for upskilling. 

Despite challenging times, we have grown 2X compared to the previous year. Our ARR remains healthy, we continue to scale up in India, Indonesia, Singapore, and the Middle East markets; and grew at a 4X rate in North America. Our strong customer base, coupled with our focus on customer success, has helped us build a foundation of referenceable customers, and we continue to add new customers every quarter. With the continued uncertainty of market conditions, our focus is to significantly improve the efficiency with which we drive our growth and sustain ourselves as a business.”

(The copy was updated with Yellow.ai's response to the story.)