Who has the power now, the startups or their employees?
If you ask Brian Walsh, head of San Francisco-based Wind Ventures, what he’s seeing in his portfolio companies, he says, “It’s been a mix of both.”
After a sharp dip in markets in the early days of the pandemic, tech workers are experiencing a workplace renaissance as they are not connected to big cities. In the year In 2021, valuations soared, venture funding was plentiful, and the Great Retrenchment saw employees leave in droves for better opportunities.
But in the year In 2022, economic uncertainty — due to supply chain bottlenecks and price inflation, coupled with crash valuations and corporate funding drying up — is forcing startups to scale back and become smarter to navigate the market.
What we are seeing
July was the worst layoff since we started tracking in 2022, when 69 tech companies cut more than 9,600 jobs, according to Crunchbase data. August was better, but still brought more than 7,500 job cuts from big companies like Snap, GoodRx and ThredUp. We documented four companies that laid off 100% of their staff in August: co-working space The Wing, proptech firm Reali, edtech-focused Edmodo and the drink line Haus. That’s the most we’ve seen in any month this year.
A lot of this is because tech companies made their peace early — knowing they had to save cash and cut people. The height of these discounts is over, says Hayley Jones, CEO of startup advisory firm Cruise Consulting, and we’ll see a steady stream of discounts in the coming months as companies start their accounts.
“What else are you spending money on? There is no other place to cut,” Jones said. “They might cut sales and marketing costs a little bit, but … unfortunately, that’s where you have to go if you want to save money.”
Interestingly, more companies (73, to be exact) held layoffs in June, but the total number of people seems to be lower. Keep in mind that Crunchbase’s layoff tracker doesn’t have input values for every layoff a company runs.
Removing the bottom round
The world has changed from what it was in 2021, when companies were awash in cash, partly due to record-breaking venture capital investments and partly due to government-sponsored paycheck protection program loans. Companies looking for funding today have a hard time raising large series, which can hurt valuations.
Who pays for this? Employees.
“It’s worth experimenting with layoffs to stretch your runway in the hopes that you can grow into your valuation and not eat a lower round,” Jones said.
Some companies have tried to shave costs by cutting research and development budgets or discontinuing new products. Others are looking for easy exit strategies, such as buyouts. However, save for a select few in tech, labor is a significant expense for most tech companies, especially those without offices. When startups have to stretch their dollars, they avoid downsizing and cutting people off.
“The world has changed. Walsh is down,” Walsh said. “From a startup perspective, when the cost of capital goes up, when it’s very difficult to raise money, when you get out of this environment, this kind of very low-cost capital, you need to change your strategy and how you build your company to accelerate growth at all costs.
Example: Dom Guzman.
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