In May the venture capital firm Sequoia distributed a memo to its fledgling founders. The 52-page presentation warned of a challenging road ahead, paved by inflation, rising interest rates, a decline in the Nasdaq, supply chain problems, war and a general fatigue over the economy. It was about to get tough, and this time venture capital was not going to come to the rescue. “We believe this is a Crucible Moment,” the company’s partners wrote. “Companies that move fastest and have the most runway are most likely to avoid the death spiral.”
Many startups seem to follow Sequoia’s advice. The mood has turned downright disastrous as founders and CEOs scrap the excesses of 2021 from their budgets. Most importantly, these reductions have impacted the number of employees. According to Layofftracker.com, which catalogs job losses, more than 10,000 start-up workers have been laid off since early June. Since the beginning of the year, the number is closer to 40,000.
The latest victims are crypto companies and the carnage is not small. On Tuesday, Coinbase fired 1,100 employees, abruptly cutting off their access to corporate email accounts and locking them out of the company’s Slack. Those layoffs came just days after Coinbase pulled jobs from more than 300 people who planned to work there in the coming weeks. Two other crypto startups: BlockFi and crypto.com-every Monday they cut hundreds of jobs; the crypto exchange Gemini also laid off about 10 percent of its staff earlier this month. Collectively, more than 2,000 crypto startup employees have lost their jobs since early June — about a fifth of all startup layoffs this month.
The conversation around crypto companies has changed abruptly over the past year. In 2021, they were the darling of venture capitalists, showering them with billions of dollars to fund aggressive growth. Coinbase, which went public in April 2021 for $328 a share, appeared to suggest an emerging gold mine in the industry. Other companies, such as BlockFi, began hiring aggressively with aspirations to go public. Four crypto startups pulled expensive primetime ads from the most recent Super Bowl.
Coinbase also focused on hyper-growth, scaling its workforce from 1,250 at the start of 2021 to about 5,000 in 2022. “It’s clear to me now that we’ve hired too much,” Coinbase CEO Brian Armstrong wrote on Tuesday. a blog post. where he announced the layoffs. “We grew too fast.”
“It could be that crypto is the canary in the coal mine,” said David A. Kirsch, an associate professor of strategy and entrepreneurship at the University of Maryland’s Robert H. Smith School of Business. He describes the contractions in crypto startups as a potential signal of “a great unraveling”, with more startups being judged on how well they can deliver on their promises. If history is any indication, those who can’t are destined for “the death spiral.”
Kirsch has spent years studying the lessons of previous crashes; he is also the author of Bubbles and crashes, a book on boom-bust cycles in technology. Kirsch says the bubble tends to burst first in high-leverage, high-growth sectors. When the Nasdaq fell in 2000, for example, the value of most e-commerce companies disappeared “well before the broader market decline.” Companies like Pets.com and eToys.com — which had made big, splashy public debuts — eventually went out of business.
