You are currently viewing A troubling startup layoff trend has emerged – TechCrunch

A troubling startup layoff trend has emerged – TechCrunch


We don’t need to tell you about the layoffs that are defining the tech landscape right now, concentrated particularly in late-stage companies that are struggling to raise extension rounds and grow into existing valuations. What we do think is important, though, is focusing on a frustrating trend that is emerging between all these headlines: some companies have announced layoff after layoff in quick succession, a double reduction that feels surprising.

For a long-time, I noticed the same startups that conducted layoffs in March 2020 had to scale back again in the 2022 wave. The first wave was in preparation and fear, this wave feels like a pullback after a surge. What confuses me now is seeing startups cut staff now, cite it vaguely due to the macroeconomic environment, and then do the same thing a few weeks later with the same reasoning.

Some nuance

In most cases, a follow-up layoff has looked larger than prior cuts, telling us that the company didn’t go far enough in its first reorganization.

It’s also worth nothing that the cadence of net new layoff events is falling, ever so slightly. According to layoff tracker layoffs.fyi, there were 150 new layoff events that occurred in July, down nearly 18% from the month prior.

According to Nolan Church, the CEO and co-founder of fractional work platform Continuum, there are a few reasons that a founder may have to do two rounds of layoffs in quick succession: business getting worse, poor forecasting, or both. He also added that one factor could be that “leadership didn’t have the courage of awareness to cut deep” when it comes to people and projects in the first round.

Continuum recently raised a $12 million Series A round to scale a suite of fractional work tools, including a service that helps startups conduct more humane. The company connects a client in need of support when conducting layoffs to a seasoned executive for anything from day-of support in sharing the news to high-level advice. He hasn’t seen any double rounds of layoffs among clients, which he attributes to the fact that his execs encourage founders “to cut once and cut deep.”

“Layoffs two weeks apart are inexcusable. Leadership, likely the CEO, drastically miscalculated,” Church said. “Layoffs two years apart don’t surprise me. Typically, CEOs of early-stage companies are optimized for two to three years of runway. The first layoff was when they initially shifted direction. As part of that event, they likely shifted course and made a new bet. The 2nd layoff is caused by that bet not paying off.”

All this in mind, according to data from layoffs.fyi as well as TC’s own reporting, here are some of the companies that have conducted at least two rounds of layoffs within months, and sometimes weeks of each other:

On Deck

On Deck, a tech company that connects founders to each other, capital and advice, has conducted another round of layoffs just three months after laying off a quarter of its staff. Sources say that more than 100 people were impacted by the workforce reduction, accounting for half of the entire staff, while the company — which confirmed the layoff to TC over e-mail — said that 73 full-time employees were laid off. No executives were impacted.

The startup’s second layoff comes with a more specific strategic plan for what’s next, while its first lay off was largely attributed to changes in the capital and accelerator markets. This time, On Deck went deeper: it has sunsetted several communities and is spinning off its career advancement arm into a separate startup.

It may be because of a more pressing need to extend runway. Sources estimated that the first round of layoffs occurred because On Deck only had nine months of runway left. Now, On Deck’s co-founders Erik Torenberg and and David Booth say that the company has more than three years of runway.

Robinhood

Earlier this week, Robinhood announced that it laid off 23% of staff across all functions, especially concentrated the company’s operations, marketing, and program management functions. The workforce reduction comes just three months after Robinhood cut 9% of full-time staff, with CEO and co-founder Vlad Tenev saying that it was “the right decision to improve efficiency, increase our velocity, and ensure that we are responsive to the changing needs of our customers.”

With the second round of layoffs officially confirmed, Tenev struck a different tone. The co-founder took responsibility for Robinhood’s apparent over hiring in the frenzy that was 2021. He said that the company last year staffed many of its operations functions under the assumption that the “heightened retail engagement” that was taking place would continue in 2022.

“In this new environment, we are operating with more staffing than appropriate,” he wrote. “As CEO, I approved and took responsibility for our ambitious staffing trajectory – this is on me.” He also said that the first round of layoffs “did not go far enough.”

“Since that time, we have seen additional deterioration of the macro environment, with inflation at 40-year highs accompanied by a broad crypto market crash. This has further reduced customer trading activity and assets under custody,” Tenev said. Robinhood’s stock price has been volatile over the past year, as well. At the time of publication, the company is trading at $8.90 after hours, dramatically lower – by 89% – than its 52-week high of $85. It’s also down 3.6% after hours.

Gemini

Crypto platform Gemini cut approximately 10% of its workforce, and then cut around 7% more of staff just weeks after. Co-founders and twin brothers Cameron and Tyler Winklevoss spoke to the somewhat expected volatility in what they called the “crypto revolution.”

“Its path can best be described as punctuated equilibrium — periods of equilibrium or stasis that are punctuated by dramatic moments of hypergrowth, followed by sharp contractions that settle down to a new equilibrium that is higher than the one before,” the co-founders wrote in a blog post during the first workforce reduction. They go on to say that crypto has entered a temporary downturn, otherwise known as the contraction phase, further “compounded by the current macroeconomic and geopolitical turmoil.”

However, Gemini did not respond to comment when it came to its second, reported layoff. A source, who spoke with TC under the condition of anonymity, said that the company was laying off staff due to what it described as “extreme cost cutting.” An internal operating plan document showed that Gemini was looking at a plan that would take the company to about 800 employees, which was around 15% fewer than the 950 employees at the time, reports Jacquelyn Melinek.

Hopin

Virtual events platform Hopin, last valued at a $7.75 billion valuation, laid off 29% of employees, or 242 people, in July. The cut came just four months after Hopin let 12% of its workforce go, at the time citing a goal of sustainable growth amid the changing market.

In addition to cutting nearly a third of the company, Hopin spokeswoman confirmed that some contractors and members of a third-party team were laid off but did not provide exact numbers. The difference between the first round and the second round, other than the latter being over double in size, is that Hopin has parted ways with a number of executives. TC learned that COO, CFO and chief business officer have left the company, although its unclear if the trio left voluntarily or were laid off.

A Hopin spokesperson over e-mail confirmed that the trio is “leaving the business,” adding that “after many discussions, we all agreed this was the best way forward for the business.”

Latch

Latch, a proptech meets SaaS platform that went public via SPAC in June 2021, was the first business that I saw conduct two consecutive weeks of layoffs.

In May, the company cut 30 people, or 6% of its total staff, per an email obtained by TC. Then, as confirmed by a late Friday press release, Latch announced that it has cut a total of 130 people, or 28% of its full-time employee base.

Similar to Hopin, consecutive layoffs comes with a side of executive churn. Sources say the cuts impact chief revenue officer Chris Lee and VP of sales Adam Sold.  In April, Latch CFO left the company less than a year after he assumed the role and after taking the company public through a reverse-merger. At the time, TC outlined the broader SPAC meltdown — and explained that Latch wasn’t immune.

Latch expects to achieve around a $40 million annual run rate cost savings across research and development, sales and marketing and general and administrative expenses after the layoff, a press release says.

Clearco

Clearco, a Toronto-based fintech capital provider for online companies, tells TC that it has laid off 125 people, or 25% of its entire staff. Those impacted will receive severance pay, a two-year window to exercise equity and job transition support from the leadership team, according to Clearco. The company did not say which teams and roles were impacted, or if any C-suite members were let go.

Clearco expanded to Germany in June but simultaneously cut 10% of its staff in Ireland, just three months after breaking into the market and announcing plans to hire over 100 employees, reports Independent.ie. It’s unclear if there are more geographically focused layoffs to come, or what exactly “strategic” options there are — but we do know that Clearco does have lots of international competitors. The startup previously conducted another round of layoffs in March 2020, a reduction that impacted 8% of staff then reasoned to the “long-term economic impact of COVID-19.”

It’s been around a year since Clearco announced that it secured funding from SoftBank, a $215 million tranche closed just weeks after the company landed a $100 million round that quintupled its valuation to $2 billion.

The takeaway

Nearly four months into covering the steady drumbeat of layoffs, it’s clear that double reductions offer mixed messages in more ways than one. It’s likely that there was a mix of factors that played a role into the layoffs, from misguided projections to fallen extension rounds to the realization that this is how bad it really gets. While employees have ultimately had to deal with the repercussions of the shifting macroeconomic climate, employers are giving us example after example of how hard it is to know how to manage a staff during a downturn. Or at least managing laying them off.



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