Thousands of workers lose their jobs amid the economic crisis

In recent months, several GoFundMe employees had begun to feel uneasy as the company’s metrics failed to meet certain internal goals. Then, one morning in late October, the company abruptly announced an all-hands meeting, at which CEO Tim Cadogan announced mass layoffs.

Even though they had heard something bad was around the corner, the news still shocked many employees. The cuts were sweeping, affecting 94 workers (12% of the global team) across the organization, from communications to customer service, marketing and trust and security. Some of the longest-tenured employees were affected, with many laid-off workers who had been there for more than five years. Several were on vacation when they got the news.

“The text messages started flooding in as I sat at a table surrounded by family on what I thought would be a short vacation,” one employee wrote. “I knew from the panic of the messages and who was sending them that life was about to change.”

The experiences of GoFundMe employees were not unique.

Amid growing economic uncertainty, layoffs in the tech sector, for both public companies and startups, have increased this fall. And over the last week or two, the drumbeat has picked up considerably.

Ride-hailing company Lyft has just let go of 700 employees. Fintech giant Stripe has laid off 14% of its workforce, around 1,000 people. Chime, another fintech unicorn, is laying off 160 people, while OpenDoor has laid off 550. At the end of October, Zillow laid off about 300 workers, and just over 120 lost their jobs at the new NFT company Dapper Labs. Another 80 on StockX, 50 on BitMex, 142 on ChargeBee – the list goes on and on.

From once bold private companies to large publicly traded platform companies, companies are tightening their belts. Amid persistent inflation, a collapse in venture funding and fear of the public markets, more tech companies than ever are 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’s a catastrophic, 2008-style situation. That doesn’t mean it won’t hurt, though.”

The end of a two-decade boom

The pandemic extended a multi-decade boom in the tech sector, which grew giants like Apple, Amazon and Facebook and also in recent years injected venture capital money into startups like Reddit, Coinbase and Affirm.

But this year the alarm bells started ringing.

While many tech companies were still flying high in early 2022, Russia’s invasion of Ukraine in February accelerated the global economic crisis. By late spring, the tech industry was bracing for a historic downturn as valuations plummeted and companies sought to cut costs, largely through layoffs.

More than 17,000 tech workers lost their jobs in both May and June, while another 29,000 cuts were recorded in July and August, according to layoffs tracker Layoffs.fyi. Layoffs eased in the fall, but layoffs have picked up: 88 tech companies laid off 12,000 workers in October, according to Layoffs.fyi’s count, and there have already been at least 3,500 layoffs this month, not counting the Estimated 3,700 Twitter workers laid off. Friday.

The Federal Reserve has continued to aggressively raise interest rates in response to persistently unexpectedly high inflation, and accompanying economic headwinds, from higher costs to reduced access to capital, are squeezing businesses in every way. Many companies like Meta have already tried softer measures, such as “quiet layoffs” (managing employees through performance reviews), but now have no choice but to start with real cuts.

“It always happens in cycles like this that sometimes companies don’t make the layoffs significantly enough, instead they slow down hiring and hope that normal turnover can straighten them out,” said Matt Murphy, partner at Menlo Ventures. “Coming out of Q3, which was much more difficult than Q2, it became much more apparent how many headwinds there were, and startups realized that they can’t get out of this with the staff they have and that in fact they have to fire people.”

Startups realized that they can’t get out of this with the staff they have and they actually have to lay people off.

Davis, Interplay’s VC, explained that cost-cutting and layoffs are happening across the board, not just in the tech industry. But public tech companies, as well as early-stage and growth startups, will face additional challenges, he said.

“We’re still in a controlled bear market, and that’s what should happen based on what the Fed is trying to do,” Davis said. “Layoffs are the expected result. We’re raising rates, but inflation hasn’t come down yet.”

Public companies will have to sacrifice growth for the bottom line to appease skittish new investors, while growth-stage startups will take the most significant hits to their valuation in “down rounds.” Klarna, Stripe, and BlockFi have participated in “down rounds” this year, and crypto firm Blockchain.com is reportedly in the process of preparing one.

Venture capital funding is also harder to come by, falling 50% year-on-year in the third quarter of 2022, according to the Harvard Business Review, as investors nervously pull back.

Many VCs now advise founders to make short-term sacrifices in the name of long-term growth. “In these times, leaders must run their businesses in a way that aligns short-term growth with preserving cash for future uncertainty,” said Alyssa Jaffee, partner at 7wireVentures. “This often requires making difficult decisions, especially when a reduction in manpower is required to expand the runway.”

Is there more to come?

Is this the peak of layoffs or just the start of an even more brutal round of cuts? It all depends on the economy, say industry watchers.

Roger Lee has been tracking the upheavals in the tech industry for the past two years. The founder of fintech startup Human Interest, he launched layoffs tracker Layoffs.fyi early in the pandemic when companies began laying off workers and has since kept track of the tech industry’s downsizing.

“We will continue to see layoffs, and it will continue to be tumultuous, until people feel that there is an end in sight to inflation,” he said. “It’s all about inflation and the Fed, and once there’s more clarity on when that’s going to end, then, and only then, will you start to see the layoffs go down.”

The focus on frugality and cost-cutting is a dramatic cultural shift for some of the affected companies, which were happily spending just months earlier. In the spring of 2022, the launch of financial services organized a lavish “Club Brex” party for the employees in Denver, Colorado, with The Chainsmokers as surprise guests, and chartered yachts to wine and food founders at Miami Tech Week. In mid-October, the company laid off 136 people — 11% of the workforce — due to “the uncertain economic reality.”

The jury is out on how the downsized companies will fare. Interplay’s Davis said that removing talent from the workforce can make teams work more efficiently. “Restructuring teams is difficult, but there is a macro social benefit when teams are realigned with better builds,” he said. “Great people will change 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 after the layoffs, previously outsized companies could unexpectedly find it harder 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 at 40% of the pace… Reductions can mean that many products we know and use may stop changing.”

Others take the long view: that this is just another wave in the never-ending cycle of boom and bust.

“There’s a lot of news today about tech layoffs and impending chaos in the world at large. 20 years ago, it was something like that. Back then I dreamed of the cloud and the applications that lived in it.” tweeted Om Malik, venture capital investor and writer. “Dark days come, dark days end. Technology gets bigger and more important.”

The upside 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 open jobs. Friday’s U.S. jobs report showed the country added 261,000 payrolls in October, indicating the labor market remains strong, even as unemployment rose to 3.7 percent, for against expectations.

“There are still more tech jobs available than layoffs, and we expect it to stay that way even in a recession,” said Patrick Kellenberger, chief operating officer of recruiting firm Betts Recruiting. “Specifically, funding for Seed and Series A-funded companies grew in the third quarter, seemingly unaffected by the current economic slowdown. With thousands of people receiving funding, that means tens of thousands of positions will open work on previous stage initiatives”.

admin