Startups Weekly - As startup layoffs continue, some perspective

Saturday, June 11, 2022

Welcome to Startups Weekly, a fresh human-first take on this week’s startup news and trends.

Image Credits: TechCrunch

Per Layoffs.fyi, a layoff tracker, over 16,000 tech workers lost their jobs in May, and June is off to a similarly brutal start. TechCrunch’s senior reporter Amanda Silberling and I have accidentally, and unfortunately, started working on a weekly column about the tech layoffs; what first started as a tip-over moment at Thrasio has soon expanded to startups regardless of sector, financing stage or if they had obvious growth tensions or not.

As the layoffs continue, it can feel like the same boilerplate story: number of those impacted, roles or teams that were reduced, severance package details and a vaguely generic statement from the CEO citing market turbulence as a key reason for the reduction. That doesn’t mean they aren’t any less newsworthy, but I’m always curious about the follow-up story opportunities. So, I asked all of you for some perspective, namely what else to ask and include in these stories.

From Jennifer Neundorfer: I’d love to see a follow-up piece with data on where people who are laid off go next. Do specific companies/industries scoop them up? Do some start companies? Something else entirely?

This question made my mind immediately jump to the talent opportunity that emerged in early 2020 when unicorns laid off chunks of staff in preparation for the pandemic. Then, I wrote a story about how startups were hiring pods of employees that got laid off, otherwise known as a not-so-new strategy of acquiring. At one point, a majority of online mortgage company Stavvy was full of ex-Toasters impacted by the restaurant tech’s 50% workforce reduction.

Beyond the rise of acqui-hiring, I think we’ll see some classic fellowships pop up that help recently laid-off people break into entrepreneurship. Neundorfer’s firm, January Ventures, started a program similar to that of Cleo Capital, which gives capital to aspiring founders to kickstart them.

The key here is that layoffs make people more risk averse, especially depending on their socioeconomic background. That mixed with the fact that Big Tech is on a hiring freeze, I don’t know what happens when a wave of people lose their jobs in a mixed messages hiring market.

But, if anyone has the data to answer this question, do send it on over!

From Anna Rasby-Safronova: Did the ones who were laid off see it was coming and how do layoffs affect mental health, anxiety and productivity of the rest of the team?

I’ve now spoken to dozens and dozens of former and current employees within struggling startups, and the reaction to layoffs largely feels like whiplash for those impacted.

The reason? The difference between layoffs in 2022 and 2020 is that many of the companies that are laying people off today are well capitalized, named unicorns just one year ago. In 2020, cuts could easily be cited to an unprecedented pandemic that complicated growth plans; while in 2022, cuts come right after leaders boasted insane growth just months prior. Add in the fact that people are still laid off in questionable ways — from severance showing up in payroll to long-winded memos — and I can’t imagine these cuts don’t aggressively impact morale internally and externally.

International workers face additional complexities when laid off, as loss of employment can put visa status in flux. Even as companies put together spreadsheets or resume support, the added volatility could mean talented workers are forced to leave the United States altogether to pursue a better life somewhere else. These are stories we’re working to tell but are sensitive for obvious reasons.

From Luke Metro: Which fraction of company’s employees were hired in the last 1-2 years? I do wonder how many companies doing layoffs did massive hiring sprees during the frothiness of 2021?

The reason this question is important is that it colors how a layoff was engineered; and if it only impacts the newest members, the most nascent products or everyone across the board — from executives to entry-level hires. If it’s the latter, it may suggest that a startup is having deep inset problems that requires a mass reorganization of its resources. If a workforce reduction largely impacts those hired in the past year, it could mean that the startup needs to scale back some of its more experimental work and hone back to where it already has product-market fit. Thanks for the tip, I’ll start asking about this!

In the rest of this newsletter, we’ll talk about multiplayer fintech and the grocery delivery world. As always, you can support me by forwarding this newsletter to a friend or following me on Twitter or subscribing to my blog. As a programming note, I am out on vacation next week so expect an abbreviated Startups Weekly column, still from yours truly, but with support from Henry Pickavet, Richard Dal Porto and the rest of the team.

Guide: What is SOC 2 and Why Do Startups Need It

Deal of the week

A Santa Monica-based startup, Ivella wants to build banking products for couples to take away money tensions. CEO and co-founder Kahlil Lalji is launching with a split account product that just raised $3.5 million in funding from Anthemis, Financial Venture Studio and Soma Capital. Other investors include Y Combinator, DoNotPay CEO Joshua Browder and Gumroad CEO Sahil Lavingia.

Here’s why it’s important: The best solution, so far, for multiplayer fintech has been joint accounts: meaning that two people will set up an account where they — sing it with me now — join their accounts and pull from the same pool. Instead, Lalji wants to build a split account: Couples maintain individual accounts and balances but get an Ivella debit card that is linked to both of those accounts.

With that shared card, couples can set ratios — maybe prorate what percent of each bill someone pays depending on their income — and Ivella will automatically split any transactions made using the Ivella debit card. This in and of itself was the largest technical challenge that Ivella was confronted with in its early days, describes Lalji:

“The place that a lot of people fall short, just like a lot of fintech falls short, is that they don’t break the mold of what banking looks and feels like,” Lalji said. “And because we’re focused specifically on couples, we want to build a product that feels not so sterile and not just like a bank.”

The delivery market is coming down from its pandemic highs

Our own Kyle Wiggers wrote about how the on-demand delivery market’s pandemic period of rapid growth is winding down. As he notes, there are signs of a correction including Instacart’s slashed valuation, DoorDash and Deliveroo’s stock price fluctuation, and Gorillas, Getir, Zapp and Gopuff conducting layoffs while others like Fridge No More and 1520 shut down entirely.

Here’s why it’s important: As I told Wiggers over Slack, the on-demand delivery market’s lack of profitability is often talked about in a, “that’s so obvious” and broad-stroke manner. This piece got into the heart of why grocery delivery is so expensive and more specific struggles startups face in this market.

Here’s what Craft Ventures partner and co-founder Jeff Fluhr, the ex-CEO of StubHub, said to TechCrunch; despite the fact that Craft has invested in a number of delivery companies:

“The fast delivery space is the epitome of exuberance of 2021: Investors were pouring money into cash-guzzling companies with flimsy business models,” he told TechCrunch in an email interview. “Fast delivery companies are capital intensive. They require local infrastructure, local people and local operations that are expensive to build out. As a result, all of these companies have been incinerating boatloads of cash over the past 12 to 24 months as they’ve expanded to new geographic markets. Of course consumers like the instant gratification of a pint of ice cream in 15 minutes, so revenues grew quickly, driven by a great consumer experience and word-of-mouth virality. Investors followed the growth paying no attention to the potential for profitability. But the notion that a startup can deliver on that promise profitably is a pipe dream.”

Across the week

We’re talking about the new era of climate tech at TechCrunch Climate next week! Attend the June 14 event to hear from Bill Gates, Department of Energy Secretary Jennifer Granholm and a wave of emerging entrepreneurs looking to solve our world’s biggest problems.
Announcing the full agenda for TC Sessions: Robotics happening this July
Announcing the TechCrunch+ Stage Agenda at Disrupt 2022
In case you missed last week’s newsletter, read it here: “Nuance? In this startup market?” Also read the companion TechCrunch+ column, “A downturn is nothing new for diverse founders.”

Seen on TechCrunch

Seen on TechCrunch+

Until next time,

N