The Bad Times Are Coming for Startups
Last week, employee of Cameo, a startup that sells personalized videos from celebrities, gathered for a hands-on meeting. Bad news: Nearly a quarter of employees were laid off.
“Today was a brutal day at the office,” said Steve Galanis, the company’s CEO, wrote on Twitter immediately after notification. “I have made the painful decision to give up 87 beloved members of Cameo Fameo.” In the replies, people were very angry. Cameo went through a massive hiring spree in 2021, and multiple layoffs have affected people who’ve worked there for less than a year. It doesn’t help that Galanis’ Twitter avatar is an NFT Bored Ape.
Just hours later, Doug Ludlow, CEO of fintech startup Mainstreet, announced that he cut the company’s staff by 30%. “We took this action because we believe there is a very high probability that today’s extremely difficult market will only get worse,” Ludlow tweeted“And is likely to remain that way for months, if not years.”
The layoffs, and the buzz surrounding them, is a stark contrast to the optimism of the past two years, when investors ventured through multimillion-dollar deals like canapé at a cocktail party. Skyrocketing valuations and explosive IPOs make startups seem like a safe bet, inspiring hundreds of new venture funds. Now, the party seems to have come to an abrupt end — and downsizing could signal even worse times ahead.
Since January, nearly 50 startups have made significant layoffs, according to data collected by Fire.fyi. Among them are companies like Robinhood and Peloton, which, after thriving during the pandemic, are now faced with the reality of a less developed, cash-less economy. Startups like Cameo have had to reverse the pace of spending over the past two years; Galanis said Information that layoffs were a “painful but necessary” adjustment to “balance our costs with our cash reserves.”
Cash reserves will be increasingly important to weather the storm — startups that haven’t raised funds recently are likely to struggle more in the future. The first three months of 2022 marked a record high for VC trading activity among late-stage startups, but that frenzied pace has begun to slow. Now, many investors have advised founders to thrifty spending with the expectation that raising the next round might not go as planned.
Matt Turck, a venture capital partner, said: “Right now, the startups that are in the most difficult situation are the startups that are in the growth phase with unicorn valuations, high burn rate, good but not great stats and 12 months cash. Firstmark company. “You’re going to see a lot of layoffs there, because companies need to urgently cut their burn if they don’t want to run out of cash.”
Kyle Stanford, senior VC analyst at PitchBook, said the mood among venture capitalists has changed dramatically since 2021. Enthusiasm has waned, in part, due to broader economic factors – rising interest rates, inflation and geopolitical uncertainty – have created a downturn in the public markets. It takes more time for those factors to affect private companies, but the mass layoffs of growth startups is a sign that it has. Startups that had planned to IPO in 2022 have largely delayed this, and mass-market tech companies like Uber have decided to cut back on marketing and recruiting spending. Larger companies, like Meta, have implemented hiring freezes and warned employees that cuts could be imminent.