As domestic and global economies grapple with the COVID-19 era, its impact on startups is coming into focus: All will be impacted, many will suffer and some will close.
Boston, a city that TechCrunch keeps tabs on, has seen a number of well-known startups struggle in recent weeks. Their misfortunes come quickly after companies in the region recorded huge venture raises, generating notable momentum.
In December, TechCrunch wrote that “despite winter’s chill, the Northeast’s tech ecosystem is white-hot,” taking into account Boston’s historical gains in the venture world. And earlier in 2020 we covered a few huge rounds that the city’s own Toast and Flywire had put together; worth $520 million as a pair, the two venture deals stood out for how large they were and how close to one another they were announced.
Indeed, looking at preliminary venture data from Crunchbase, Boston was on track to crush its 2019 tally of venture rounds of $50 million or more in 2020. That record-setting pace is now in doubt.
To get a feel for Boston’s new reality, we’ve collected the region’s recent news and spoke to area investors and founders, including David Cancel of Drift (the previous founder of Compete and other companies), Drew Volpe of First Star VC and a team of folks from Underscore VC.
TechCrunch had intended to start a monthly series on Boston and its venture capital and startup scenes later this month. We’re kicking it off early because the news is already here.
Slowdown
Earlier this week, restaurant management platform Toast cut 50% of its staff. The Boston-based company was valued at $5 billion in recent months, and — before the pandemic hit — was planning to spend the next few years gearing up to go public. Toast sits uniquely between fintech and restaurant tech, industries that have been arguably impacted the most by COVID-19’s spread and widespread restaurant closures.
Then another Boston unicorn laid people off. EzCater, which delivers food to business meetings, laid off 400 people. The company was last valued at $1.25 billion. We first heard rumblings last week, and when we reached out the company put it in human terms: “We’re a company that feeds meetings, and meetings are not happening in much of the country right now. We don’t have any details to share at this time, but our people would deserve to be the first to know if we did.”
Toast has raised north of $900 million and ezCater more than $300 million. They’ll likely make it through—just not with their full contingent of staff.
Apart from those jarring cuts from two of the largest players in Boston’s tech scene, other startups in the city have laid off staff. Our friends at BostInno broke how Cogito, an artificial intelligence startup that raised $20 million in September, cut 24 full-time employees and six contractors. The Predictive Index, based in Westwood, sells talent optimization software and laid off more than 25% of its workforce, 59 people. Other Boston startups that have made cuts recently all operate far from the socially distant world: flight optimization startup Hopper, travel business startup Lola and car rental company Zipcar. The list continues with smaller startups also cutting headcount.
The layoffs are scattered across travel, food, recruitment and talent optimization. And most likely, they will continue.
Today, tomorrow
Drew Volpe, founder and managing partner at First Star, knows the Toast crew well. He worked with the founders and CEO Chris Comparato long before they founded Toast when they were all at Endeca, a Cambridge-based software company.
While Boston’s restaurant and travel tech is hurting, Volpe told TechCrunch that “overall, though, [restaurant tech and travel tech] are not a significant percentage of the ecosystem. The center of gravity for Boston tech is in hard-tech spaces like biotech, cybersecurity, healthcare, agtech, robotics. These areas are less affected or actually thriving because of the pandemic and I’m sure people are flowing to them.”
That in mind, Volpe remains optimistic about Boston’s startup scene in the coming months.
“Having a front row seat as our neighbors in Kendall Square and some of our own portfolio companies work on vaccines and treatments, I’m hopeful we’ll be able to beat the outbreak,” Volpe said, referring to a biotech-heavy area outside Boston. “However, I don’t see a path where things go back to normal anytime soon. That means, restaurateurs will need technologists to help them serve their customers in new ways and rethink the whole industry, creating huge opportunities for startups, big and small.”
He added that “having a breakout startup like Toast stumble isn’t great for an ecosystem, but it frees up talent.”
Richard Dulude, a partner at Underscore VC, says these unicorn layoffs will be a “forcing function for these companies to refocus their remaining teams on profitable slower growth and customer acquisition.” He said at Underscore, they’re actively scanning lists of those laid off to hire talent for their portfolio companies. Michael Skok, another partner at the firm, said layoffs are not representative of a weak business.
“There are a lot of great businesses that need to, and in some cases already have, cut really deep, really fast. This is not a reflection on the strength of the companies or their solutions, it’s a reflection on the market itself.”
In an interview with TechCrunch, David Cancel, CEO of Boston-based Drift, said Boston has seen “less of an impact so far” than Silicon Valley, but that “it’s early still.” He cited the city’s diversity in company type — highlighting “healthcare, biotech and enterprise software” in particular — as helpful.
Drift, Cancel’s company, sells a suite of tools that helps companies sell goods in a more buyer-centric fashion; its goal is to empower buyers over sellers, a somewhat counterintuitive model. Regardless, despite not having raised money since mid-2018, its CEO told TechCrunch that the firm still has “largely most of that [round] left” and has access to untapped debt. The company is still hiring, but has reduced its open job count.
TechCrunch asked Cancel about local morale and how the local entrepreneurship community was taking the new reality and slowing the economy. We wanted to know if they were keeping their heads high, or if the mood was a bit more 2000-era Silicon Valley. Cancel said the Boston startup scene is “chin up, but I would say that they’re almost like too chin up, [perhaps] too unaffected so far.”
He went on to say that during the aftermath of the dot-com boom, “2002-2003 San Francisco was the apocalypse.” Boston today, Cancel continued, isn’t like that: “We’re only a couple months in so we’ll see what happens, but we don’t have that same feeling.”
Boston has always been a resilient city. We’ll see how that trademark strength translates into what’s next for its tech community.
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