Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
Today, we’re taking digging into two trends: recent layoffs at various domestic unicorns and secondly, how those layoffs match a recent uptick in austerity across the technology industry itself. It seems that some belt tightening is afoot, something that we’ll need to keep an eye on as the 2020 IPO cycle begins. There are no domestic technology IPOs scheduled yet, but there are rumblings of impending offerings. (Restaurant SaaS company Olo, for example, is expected to be among the first out of the gate.)
With news of layoffs at Zume and Getaround coming this week, 2020 is already off to a trot when it comes to publicly-known staff reductions at tech and otherwise venture-backed companies. Let’s dig in.
Downsizing
A caveat before we get any further: for most people, losing a job creates serious emotional and financial consequences. While seeing some CEOs forced to publicly admit mistakes may be pleasant, layoffs are never good; you just don’t like to see them. Nothing we discuss this morning — or yesterday, to be clear — is brought to you for reasons other than to better understand the market.
That said, there have been issues at a number of companies in the Vision Fund startup arsenal over the last 12 months. In 2019, layoffs reached a number of companies that the SoftBank-backed capital machine had invested in, including Uber, Wag, WeWork, Fair and Katerra. There’s nuance to each situation (including that Katerra laid off some staff but hired elsewhere), but seeing that many reductions was noteworthy.
That two more companies — Zume and Getaround — are undergoing cost-cutting through staff reductions in rapid succession so far this year implies that something larger is going on. There is, as it turns out.
Dice, part of DHI Group, is a platform for tech professionals seeking work. (DHI also owns similar properties for financial pros and workers with government security clearances.) It recently covered some data from Challenger, Gray & Christmas, a Chicago-based outsourcing firm.
Here are the key paragraphs from the report itself, dealing with the U.S. in particular:
Technology companies announced 64,166 job cuts in 2019, up 351% from the 14,230 announced the previous year.
“The sectors with the highest number of cuts this year were all dealing with trade concerns, emerging technologies, and shifts in consumer behavior. We tracked a lot of hiring activity in these industries as well as cuts,” said Challenger.
So it seems that what we’ve seen from Vision Fund portfolio companies is component to what the technology industry in the United States went through last year. That we’re kicking off 2020 with more layoffs, therefore, isn’t a surprise.
Putting on our prediction hat, it would be simple to assume that we’ll see more of the same in 2020. Living today, as we do, in the post-WeWork IPO era, there is greater awareness in the startup and unicorn worlds that costs are losses are bad, costs not great, and profits good. This will lead to other staffing cuts in the year.
Recall that there are myriad unicorns that need to go public before the IPO window closes. We wrote about that here, and the Wall Street Journal hit on the same topic just yesterday. To get those companies out and into the world, expect a new focus on cost control. And that means layoffs.