Startup layoffs are back, and the damage is starting to add up.
Back in early 2020, an online layoff tracker — Layoffs.FYI — was built to collect and tabulate startup layoffs. Cribbing from media reports and other sources, the data source was a hot property during the early-COVID startup downturn.
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As quickly as it rose in prominence, however, it seemed to fade. Startups and their backing investors realized shortly after cuts swept the industry that most upstart tech companies were going to be at least all right during the pandemic, slowing the rate of layoffs. Software companies wound up enjoying record demand, from both customers and investors, eventually fueling the 2021 SaaS bubble.
Now the bad times are back, if in a different form.
Back in 2020, we saw the startup market crumble in what felt like days; the current downturn, in contrast, has been building since late 2021. With that in mind, the gradual rate of layoffs this year is not a huge shock.
Layoffs.FYI data indicates that after reaching a trough between Q4 2020 and Q4 2021, staff cuts at startups have risen off a very low floor. And the same dataset indicates that the second quarter has already matched the first quarter’s cuts; in numerical terms, Layoffs.FYI counted just under 9,300 startup layoffs in Q1 2022 and around 8,700 thus far in Q2.
Neither number is anywhere near the more than 60,000 job cuts that the same source counted up in the second quarter of 2020.
But don’t let those comparisons save you from worry — the trends aren’t looking good.
From hot to not
Looking at the data on a per-month basis makes it clear that the pace of startup layoffs is accelerating. May is already ahead of April and March results by the midpoint of the month, while March 2022 was previously the worst month since the start of 2021.
If the current trend continues, we could see startup layoffs persist throughout the summer.
Not every sector will be hit in the same manner, of course. In the first quarter of 2022, we saw a retreat in the aggressiveness of software startups as their public comps melted and hopes for future easy capital evaporated.
Crypto-focused startups, however, had a pretty solid first quarter and seemed able to dodge the general reckoning afoot in the technology market thanks to both strong investor demand for their shares and a general FOMO edge that comes from many believing that decentralization is the future of the economy. Some investors perhaps overpaid for the chance to buy a part of the imminent restructuring of the business landscape.
But the recent Terraform Labs meltdown, as well as Coinbase’s cratering valuation and huge profit swing, has changed sentiment in that market as well. The EV explosion is behind us, mostly SPAC’d out of startup reach, while the self-driving craze is kaput as the technology slowly matures. The on-demand boom fizzled alongside mask mandates. Even SoftBank is pulling back.
Across startup land, then, it’s slightly hard to see where the hype of literally yesteryear is alive and well. There are few pockets of optimism; we anticipate not only slower startup hiring but also more startup diets.
This is bad and good news. It’s awful for the humans impacted by cuts; it is hard on companies making the cuts; it’s a letdown for investors who had put capital to work in hopes of the market staying warm.
The cuts are good news for startups really building something transformational, however. Those startups will still be able to raise, and will now be able to do so in a labor market that might be a bit easier to navigate. More simply, as lesser startup projects shed talent, better efforts will be more able to hire. This re-ordering of human capital is hard on people, but largely good for the economy.
How bad will things get? That is the million-dollar — sorry, multibillion-dollar — question. If I was into the divination game, I would say that the current chart appears to forecast a rise in monthly layoffs into June and July, with declines thereafter, presuming no other shocks hit the economy, something that is far, far from certain. How active venture investors prove in the coming months will also be a key data point.
Today we can see the toll of the current startup reset. Whether it will become a recession is something we’ll soon find out.
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