Over the past few months, a number of GoFundMe employees had begun to feel uneasy as the company’s metrics failed to meet certain internal targets. Then, one morning in late October, the company abruptly announced a town hall meeting, at which CEO Tim Cadogan announced mass layoffs.
Even though they had smelled something bad around the corner, the news still came as a shock to many employees. The cuts were sweeping and affected 94 workers, or 12% of the entire team, across the organization, from communications to customer service, marketing, trust and safety. Some of the oldest employees have been affected, with many laid off workers having worked there for more than five years. Many were on vacation when they heard the news.
“The text messages started pouring in as I sat at a table surrounded by my family during what I thought was a short vacation,” one employee wrote. “I could tell by the panic in the messages and who was sending them that life was about to change.”
The experiences of GoFundMe employees were far from unique.
Amid growing economic uncertainty, layoffs in the tech industry, both for public companies and startups, have spiked this fall. And over the past week or two, the drumbeat has definitely increased.
Ride-sharing company Lyft has just laid off 700 employees. Fintech giant Stripe has said goodbye to 14% of its workforce, or about 1,000 people. Chime, another booming fintech unicorn, is laying off 160 people, while OpenDoor laid off 550. In late October, Zillow laid off some 300 workers, and about 120 others recently lost their jobs at the buzzing NFT startup, Dapper Labs. Another 80 at StockX, 50 at BitMex, 142 at ChargeBee – the list goes on and on.
From once-spunky private startups to major publicly traded platforms, companies are tightening their belts. Amid lingering inflation, a slump in venture capital funding, and fear in public markets, more tech companies than ever are now being forced to do the unthinkable: downsize their workforces.
“It’s going to be a tough time; on a micro level, it’s going to affect a lot of people’s jobs and livelihoods,” Mark Peter Davis, managing partner at Interplay Ventures, told Insider. “On a macro level, I don’t think it will be a catastrophic situation, like in 2008. That doesn’t mean it won’t hurt though.”
The end of a two-decade boom
The pandemic has extended a decades-long tech boom that has grown giants like Apple, Amazon and Facebook and also injected venture capital into new startups like Reddit, Coinbase and Affirm in recent years. .
But alarm bells started ringing this year.
While many tech companies were still flying high at the start of 2022, Russia’s invasion of Ukraine in February accelerated the global economic turmoil. In late spring, the tech industry braced for a historic slump as valuations plummeted and companies sought to cut costs, largely through layoffs.
More than 17,000 tech workers lost their jobs in May and June, while July and August saw another 29,000 cuts, according to layoff tracker Layoffs.fyi. Layoffs fell asleep in the fall, but cuts have resumed: 88 tech companies laid off 12,000 workers in October, according to Layoffs.fyi’s tally and there have already been at least 3,500 more layoffs this month – not counting the roughly 3,700 Twitter workers laid off on Friday.
The Federal Reserve has continued to aggressively raise interest rates in response to unexpectedly high and persistent inflation — and the accompanying economic headwinds, from higher costs to reduced access to capital, are compressing businesses in all the domains. Many companies like Meta have already tried softer measures, such as “quiet layoffs” (managing employees using performance reviews), but now have no choice but to start real cuts.
“It always happens in cycles like this that sometimes companies don’t lay off big enough, but instead slow down hiring and hope normal turnover will resize them,” said Menlo Ventures partner Matt Murphy. . “Coming out of the third quarter, which was much tougher than the second, it became much more apparent that there were a lot of headwinds, and startups realized they couldn’t get away with it. the staff they had and that they actually had to lay off staff.”
Startups realized they couldn’t get by with the staff they had and actually had to lay people off.
Davis, the VC at Interplay, explained that cost cuts and layoffs are happening across the board, not just the tech industry. But public tech companies as well as early-stage and growth-stage startups will face additional challenges, he said.
“We’re still in a controlled market downturn, and that’s what should happen based on what the Fed is trying to do,” Davis said. “Layoffs are the expected outcome. We’re raising rates, but inflation hasn’t come down yet.”
Public companies will have to sacrifice growth for the bottom line to appease newly skittish investors, while growth-stage startups will take the biggest hits to their valuation in the “downturns.” Klarna, Stripe, and BlockFi have all been in “down rounds” this year, and crypto firm Blockchain.com is reportedly preparing for it.
Venture capital funding is also simply harder to come by, with a 50% year-on-year decline in the third quarter of 2022, according to Harvard Business Review, as investors nervously back off.
Many VCs now advise founders to make short-term sacrifices in the name of long-term growth. “In these times, executives need to direct their businesses in a way that aligns near-term growth with preserving cash for the uncertainty ahead,” said Alyssa Jaffee, partner at 7wireVentures. “It often requires tough decisions to be made, especially when it comes to reducing manpower to expand the runway.”
Is there more to come?
Is this the peak of layoffs, or just the start of an even more brutal series of cuts? It all depends on the economy, say industry watchers.
Roger Lee has been following the convulsions of the tech industry for two years. Founder of fintech start-up Human Interest, he launched Layoffs.fyi, a layoff tracking tool, at the start of the pandemic as companies began laying off workers, and has since seen record downsizing. in the technology industry.
“We will continue to see layoffs, and it will continue to be tumultuous, until people feel like the end of inflation is in sight,” he said. “It’s all tied to inflation and the Fed, and once there’s more clarity on when this will end, then – and only then – will you start to see layoffs go down.”
The focus on frugality and cost-cutting is a dramatic culture shift for some of the companies affected, which were spending happily just months before. In the spring of 2022, the financial services startup hosted a lavish “Club Brex” party for employees in Denver, Colorado with The Chainsmokers as a surprise guest, and rented yachts from wine and restaurant founders during Miami Tech Week. In mid-October, the company laid off 136 people, or 11% of the workforce, due to “uncertain economic reality”.
The jury is out on how lean businesses will fare. Interplay’s Davis said removing talent from the workforce can allow teams to work more efficiently. “Restructuring teams is difficult, but there is macro-social benefit when teams are realigned with better builds,” he said. “Great people will change jobs and join new teams, and the cuts will also lead to the birth of new entrepreneurs.”
On the other hand, Sridhar Ramaswamy, a former Google executive who runs search startup Neeva, said that in the wake of layoffs, previously poached companies may find it unexpectedly difficult to innovate and develop new products. “What’s unique about software is how complex and interconnected it becomes. It’s not clear to me that a team of 100 people working on a product can suddenly shrink to 40 and proceed to 40% pace… Discounts could mean that many of the products we know and use could simply stop changing.”
Others take a long-term view: that it’s just one more wave in the endless cycle of boom and bust.
“Today there is a lot of news about tech layoffs and impending chaos in the world at large. 20 years ago it was something like this. Back then I was dreaming of cloud and apps who lived there, tweeted Om Malik, a venture capitalist and writer. “Dark days are coming, dark days are ending. Technology is getting bigger and more important.”
The silver lining for laid-off workers is that, even with major players like Amazon and Apple slowing or freezing hiring, there are still a significant number of jobs open. Friday’s U.S. employment reports said the country added 261,000 jobs in October, indicating the labor market remains strong, even as unemployment rose to 3.7%, ahead on expectations.
“There are still more jobs available in technology than those who have been laid off and we expect this to be the case even in a recession,” said Patrick Kellenberger, chief operating officer of the company. recruitment company Betts Recruiting. “Specifically, funding for Seed and Series A-backed companies increased in the third quarter, seemingly unaffected by the current economic downturn. With thousands of people receiving funding, this means tens of thousands of jobs will be created. in early-stage startups.”
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