Startups are once again considering layoffs as a way to control cash consumption and attract new capital.
News that Fast, a one-click checkout software provider targeting the e-commerce market, is offering sharp staff cuts to investors in hopes of securing new capital is notable, but a single data point. A public database tracking startup layoffs, however, indicates that the company is not alone in looking to reduce its headcount.
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It’s doubtful that accelerating staff reductions will make the startup labor market dramatically less talent-friendly. Startups are not the only companies in the market hiring technology workers. Upstart technology firms must compete with both industry incumbents, like Apple and Microsoft, for talent, as well as traditional firms building out their own in-house engineering and data teams. So it’s likely that even as startups trim staff, the labor market for tech workers remains more than temperate.
But cutting headcount is a quick way to cut burn and extend runway. If cash is business oxygen, laying staff off lets a company breathe more slowly, extending its life expectancy without an infusion of external capital (air).
It doesn’t seem likely that we’re on the precipice of a similar spike in layoffs that the onset of COVID-19 brought in 2020. That moment is essentially impossible to reconstitute in business terms. This time around, folks better know what is coming. Changing public market valuations for tech companies and a frozen IPO market have soured private-market sentiment concerning high-growth, high-burn startups. But the damage will accrete more slowly, as startups are each on a different cash countdown, meaning that their respective hard choices about staffing levels won’t occur at once.
Let’s take a quick moment to consider the latest state of the Fast saga, skate through recent startup layoffs to see if we can spy a trend, and ask what we’re going to see in Q2.
Layoffs
The Exchange noted yesterday that while Fast was illustrative of a startup that raised money at a valuation that its eventual traction couldn’t match, it wasn’t worth dunking on too harshly; we expect more startups to wind up in similar straits this year, and we want to be able to discuss their efforts to stay afloat without coming across as censorious asshats.
Not that we don’t at times desire that moniker; we do. Just not this time. That’s because startup layoffs stories are really several tales in one. There’s the founder angle, the investor perspective, and, most importantly, the impact of staff cuts on the humans with the least capital and the smallest safety net in startup land — the employees, especially those most junior.
It’s not the time to be a jerk — livelihoods are on the line. That in mind, we’ll reserve our fire for capital allocators and capital spenders, when we decide to use it.
Fast is offering up sharp cuts to its bloated staff in hopes offering a reduced cost structure will entice investors to keep funding its product and GTM work. The company’s 2021 revenue appears to be measurable in the six-figure range, which is a fascinating data point for a startup that has raised nine figures of capital. By those two metrics, Fast ranks among the least cash-efficient software startups we’ve ever seen.
Its proposed cuts matter as the company will likely die without more capital, so how far it has to go to get said funding will help us understand how deep in the penalty box high-priced startups with famous backers will find themselves when they miss growth targets. We’ll return to Fast when it either dissolves or raises more capital after hacking away at its org chart.
Who else is making cuts? It’s time to bring back our old friend, Layoffs.fyi, a website that was a hot property during the early COVID layoff wave but fell into polite irrelevance as 2020 rolled along and the 2021 venture capital boom took flight. Now it’s back, and it has some fascinating data points:
- Nine companies were cited by the tracker in Q4 2021 as having cut staff
- 24 companies were cited by the tracker thus far in Q1 2022 as having cut staff
The data is not perfect, with some recently public companies that were formerly startups creeping into the mix — concerns like Casper in Q4 2021 and Thinkific in Q1 2022. But the trend is clear: No matter the nuance of the data, reported layoffs at startups are picking up.
That likely means that underneath the headline numbers from Better.com and GoPuff and Sea and Workrise and Sezzle and Hyperscience, there are hiring slowdowns and soft layoffs occurring in the form of back-burnered backfills and so forth. So the data we can see is likely more iceberg that the Titanic could see, rather than the rest of the iceberg under the water that the Titanic did not see.
What’s ahead?
Hard choices at a bunch of startups. Every company that raised at a multiple of — let’s hazard a guess — 25x or more last year that didn’t 100% nail its plan for 2021 and match targets in early 2022 is in trouble. Their valuation is heavy, and their burden is not light.
Layoffs will be a good external signal about the level of strain in the startup market. Each staff cut large enough to bubble into our conversations indicates a larger pool of in-market pain. So we’ll keep tracking the data. By the end of Q2, I think we’ll have a better handle on how the year is going to shake out. If Q1 2022 is any guide, the scale of human damage wrought by startup layoffs is going to tick even higher.
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