Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
There’s a quote from one great American financial panic that I can’t find this morning, but it went something like this: I don’t understand how yesterday we were so rich and today we are so poor.
For startups, we can begin to adapt the quip somewhat, perhaps to “I don’t understand how yesterday everyone was hiring like mad and today layoffs are so prevalent.” But, it’s true. After a time when not being able to hire quickly enough was a key risk for startups, unicorns, and public companies alike, staff cuts are the new norm.
This is the second time we’ve seen a wave of layoffs amongst the companies we cover at TechCrunch in recent months. However, the preceding wave seemed to land mostly amidst the companies that made up the Vision Fund’s portfolio. Today’s layoffs are coming more quickly, may cut more deeply and stem from a much broader set of companies.
This morning, let’s remind go over what happened in the first wave of recent unicorn layoffs (Zume, Oyo, Uber, etc) and how it compares to what is happening today as ZipRecruiter, Bird and TripActions cut staff of their own.
Downturn
When WeWork’s IPO failed to launch, and the company had to undergo an expensive and humiliating bailout by its biggest backer, the staffing cuts it underwent were notable. But its financial mishaps and leadership misdeed were often written-off as outliers; no one was as bad as WeWork, the thinking went, so it wasn’t indicative of anything more than its own failures. Other budding companies were real and thus the startup and venture worlds were probably fine, WeWork or not.
That thinking didn’t hold up, not entirely. After WeWork blasted a hole in SoftBank’s earnings report and doubts formed like ice around the probability of a second Vision Fund, companies from the first fund’s portfolio were told to start losing less money now. Enter the first round of unicorn layoffs.
Of course WeWork’s failed IPO didn’t directly cause Zume to give up on mobile pizza confectionary (I suppose we could call that business model ballast amidst an increasing economic gravity field), but the short-term rental company’s mistakes did help set the tone for the latter company’s staffing cuts. OYO, a company built with a similar loss and growth profile as WeWork, didn’t fire thousands because of its sister portfolio company’s mistakes, but the public market’s rejection of the leasing company’s business model did point out the flaws in its own.
So maybe WeWork’s implosion was a bit more than an event that only shook its own foundations.
From the moment, private markets have quickly become weird. You can find some slowdowns in venture data so far, but not enough time has passed to give us a good feel for that score. What we can say is that startups are freezing hiring and cutting staff now, and venture capitalists are openly talking about new, higher thresholds for cutting deals. Many companies are going to cut costs, and some are going to die.
Indeed, we can go on record now and say that it’s not only the middle class of startups that are going to struggle; some unicorns are going to implode as well.
Here are some recent headlines from the downturn to paint the picture:
- “TripActions CEO Defends Controversial Layoffs,” from Skift. The company recently secured access to a half-billion in debt to help fund a new product line. That’s a turnaround from growth to cuts in about 48 seconds.
- “Bird lays off about 30% of workforce amid COVID-19 pandemic,” from TechCrunch. Recall that Lime is said to be hunting for new capital at a new, sharply reduced valuation. The scooter boom is perhaps the real epitome of unicorn hubris: What if we raised huge amounts of capital, spent it on rapidly-depreciating hardware, tried to crowdsource refueling and just left the gadgets everywhere without permission? Oh, and the margins are light and we don’t know if the unit economics will work out. That approach to growth is in serious doubt.
- “$1.5 billion ZipRecruiter just laid off hundreds only days after the CEO said the economy was headed for a steep increase in hiring after the end of the coronavirus,” by Business Insider. This one speaks for itself.
The news just keeps going: Sonder in San Francisco is cutting 25% of its staff; GetAround is cutting 100 roles; WeWork cognate Knotel laid off 30% of its staff and put another 20% on hold; and a number of startups in India are making cuts as well. Hell, even Airbnb might cut some staff.
Smaller companies are making smaller cuts. A recent digest of layoffs and hiring freezes from startups of all sorts paints a grim picture. A lot of firms have stopped hiring as a smaller number are making cuts. That means fewer jobs and more seekers, flipping the startup labor market on its head.
And we’re only this far into the COVID-19 slowdown, a slowdown that could become a recession. The second round of unicorn layoffs is brutal, and we’re not even halfway through it, I’d bet.