(Repost) Bloomberg -- Startups Face Grim Holiday Season as Layoffs, Closures Mount

(Credit: Transcript by OpenAI Whisper)

Startups face grim holiday season as layoffs, closures mount. In a year when much of the tech industry has pulled back on spending, startups have been hit particularly hard. During the pandemic boom, investors were happy to bankroll promising young companies' growth at any cost. Now, with new funding rounds all but evaporated, the order of the day is cuts. More than 250,000 workers at tech companies of all sizes were let go this year, according to JobTrackerLayoffs.fyi. While that includes big reductions at giants like MetaPlatforms Inc. and Google, thousands came from smaller, closely held companies facing their first reckoning with a slowdown. More than 500 startups closed their doors in 2023, according to equity management firm Carta Inc., and many of those that endured are laying off workers and looking for alternative sources of cash. Serve Automation Inc.'s Stellar Pizza, which uses robotics technology to make pizza, is one such business. The company cut half its workforce this year and announced a crowdfunding campaign to try to raise $1.24 million, which it said would give it runway to keep operating for five more months. It's a weird time in the venture world, co-founder Benson Tsai said in an email. I'm fighting the good fight to keep the business alive. The tone in most of the industry has changed from the boundless optimism of the latest tech boom. When the last round of layoffs struck in 2020, startup employees, especially engineers, were nonchalant, knowing they would quickly find another job. Today the industry has become less hospitable. Salespeople and recruiters are leaving tech entirely to get new positions, said Roger Lee, founder of Layoffs.FYI. Even engineers are compromising, accepting roles with less stability, a tough work environment, or lower pay and benefits. Across tech companies of all sizes, 1,150 firms have cut 256,499 employees, according to Layoffs.FYI. That follows 1,064 companies cutting 164,969 employees last year. As job losses tend to be concentrated in the December and January months, as companies plan their budgets for the new year, the worst could still be on the horizon. The whiplash of fortunes has been jarring for some founders. Sri Artem started plant-based Hooray Foods in 2019, which met with rave customer reviews for its vegan bacon. The company landed a spot on Whole Foods' shelves and delighted its customers, but struggled to grow fast enough to cover costs. By around May or June this year, Hooray's problems became existential. In retrospect, Artem said he might not have spent so much when times were better on costs like San Francisco office space, though he had limited flexibility because of Hooray's need for custom manufacturing equipment. Unable to raise more money, in September Artem announced that the startup would close. It was disappointing that investors pulled back, he said. Even companies that raised huge checks shut down this year. Homebuilder Veve brought in $400 million before announcing it would liquidate its assets in November. Digital freight logistics company Convoy raised $260 million before ceasing operations. And digital healthcare service Olive won a $400 million funding round before it closed six weeks ago. In each case, the company's latest financings came after they'd already received hundreds of millions. Read more, class of 2024 can't land jobs as hiring in tech, finance wanes. Other startups sold themselves at fire sale prices after previously conducting layoffs. Videoconferencing upstart Loom had two rounds of job cuts last year, and then sold in October to Atlassian Corporation for $975 million, significantly less than Loom's previous $1.53 billion valuation. Perimeter 81, a security startup, laid off workers last December, then sold to Checkpoint Software Technologies Limited in September for $490 million. That compares with a $1 billion valuation in the startup's funding round last year. Max Elder, who is in the process of filing Chapter 7 bankruptcy to wind down his three-year-old plant-based nuggets company nowadays, says he wishes he had stopped fighting to survive a little earlier. That way, he'd still have some of the $10 million he raised in happier times to pay the legal fees and other costs associated with shutting down a business. Although he may have a buyer for some leftover ingredients, he can't retrieve them until he pays some back rent on the warehouse where they're stored. If it's impossible to raise money, some startups may see a more limited upside to staying in business. With funding tight, the kind of growth enabled by VC funding can feel increasingly out of reach. Is this a question of living or dying? Elder asks. Or is this a question of building something in scale? The latter still requires a lot of cash.



  • Tech Industry Pullback Affecting Startups: The tech sector's reduced spending has particularly impacted startups. Unlike during the pandemic boom, where investors readily funded young companies, the current climate sees reduced funding rounds and an emphasis on cost-cutting.

  • Widespread Layoffs and Closures: Over 250,000 workers in tech companies, including large firms like MetaPlatforms and Google, have been laid off this year. More than 500 startups closed in 2023, with many surviving ones laying off staff and seeking alternative funding.

  • Examples of Struggling Startups: Serve Automation Inc.'s Stellar Pizza, which used robotics for pizza making, cut half its workforce and is crowdfunding to stay afloat. Other examples include Hooray Foods struggling despite customer acclaim, and large-scale shutdowns like homebuilder Veve, Convoy, and Olive, despite substantial funding.

  • Changed Industry Tone and Job Market: The industry's mood has shifted from optimism to caution. Job security has become a concern, even for engineers, with many accepting less favorable roles. Salespeople and recruiters are leaving the tech sector for new opportunities.

  • Increased Layoffs and Uncertain Future: The number of layoffs in tech companies has risen compared to the previous year, and with job cuts typically concentrated in December and January, the situation could worsen.

  • Founders Reflect on Spending and Challenges: Founders like Sri Artem of Hooray Foods regret spending during better times, such as on costly office space. The difficulty in raising funds led to the closure of his startup.

  • Fire Sale Acquisitions and Bankruptcies: Startups like Loom and Perimeter 81, after layoffs, sold for significantly less than their valuations. Max Elder, winding down his plant-based nuggets company Nowadays, expresses regret over not ceasing operations earlier to save funds.

  • Rethinking Startup Viability: With funding hard to come by, startups face the dilemma of either just surviving or achieving scalable growth, both requiring significant capital.

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