Last week the employees of Cameo, a startup that sells personalized videos of celebrities, gathered for a rally. The news was not good: almost a quarter of the staff were laid off.
“Today was a brutal day at the office,” said Steve Galanis, the company’s CEO. wrote on Twitter just after the announcement. “I have made the painful decision to release 87 beloved members of the Cameo Fameo.” People were angry in the comments. Cameo had gone to work en masse in 2021, and many of the layoffs affected people who had worked there for less than a year. It didn’t help that Galanis’ Twitter avatar was a Bored Ape NFT.
Just a few hours later, Doug Ludlow, the CEO of fintech startup Mainstreet, said, announced that he had fired 30 percent of the company’s employees. “We have taken this action because we believe there is a very high probability that today’s incredibly rough market will only get worse,” Ludlow tweeted“and possibly stay for months, if not years.”
The layoffs and the language surrounding them are very different from the optimism of the past two years, when venture capitalists whipped up multimillion-dollar deals, like appetizers at a cocktail party. Rising valuations and booming IPOs made startups seem like a safe bet and inspired hundreds of new venture capital funds. Now the party seems to suddenly end – and downsizing could point to even worse times ahead.
According to data collected by Layoffs.fyi, nearly 50 startups have taken significant layoffs since January. Among them are companies like Robinhood and Peloton, which after booming during the pandemic, now face the reality of a less powerful economy and less cash. Startups like Cameo have had to cut spending over the past two years; Galanis told The Information that layoffs were a “painful but necessary” course correction to “balance our costs with our cash reserves”.
Cash reserves will become increasingly important to weather the storm – startups that haven’t made a round lately will likely struggle to move forward. The first three months of 2022 marked a record for VC dealmaking among late-stage startups, but that insane pace is beginning to slow. Now, many investors have advised the founders to spend conservatively in the expectation that raising the next round might not be so light-hearted.
“Right now, the startups that are in the toughest position are growth-stage startups with unicorn-like valuations, high burn rates, good but not great stats, and 12 months of cash,” said Matt Turck, a partner at venture capital. . solid Firstmark. “You’re going to see a lot of layoffs there, because companies urgently need to cut costs if they don’t want to run out of money.”
The mood among venture capitalists has already changed significantly as of 2021, said Kyle Stanford, senior VC analyst at PitchBook. Enthusiasm has waned in part because of broader economic factors – rising interest rates, inflation and geopolitical uncertainty – which have already caused a downturn in public markets. It takes longer for those factors to affect private companies, but the massive layoffs at growth-stage startups are an indication that this is already the case. Startups that planned to go public in 2022 have largely postponed doing so, and public tech companies like Uber have decided to cut back on marketing spend and staffing. Larger companies, such as Meta, have already implemented employee freezes and warned staff of potential cutbacks.
