The Bad Times Are Coming for Startups

Employees of a startup that sells personalized videos from celebrities gathered for an all-hands meeting last week. Nearly a quarter of the staff was going to be laid off.

Steve Galanis, the company's CEO, wrote on the social networking site that it had been a "brutal day" at the office. Many of the people who were laid off were people who had worked at the company less than a year. It didn't help that Galanis was a Bored Ape.

Doug Ludlow, the CEO of Mainstreet, announced that he had cut 30 percent of the company's employees.

The optimism of the past two years was shattered by the layoffs and the language around them. Hundreds of new venture funds were created because of soaring valuations and booming IPOs. The party seems to be ending and downsizing may signal worse times to come.

There will probably be some carnage.

Firstmark, Matt Turck.

According to data collected by Layoffs.fyi, nearly 50 startups have made significant layoffs since January. After huge growth during the Pandemic, companies like Robinhood and Peloton now face the realities of a less vibrant economy and less cash on hand. The layoffs were necessary to balance the costs with the cash reserves of the startup, Galanis told The Information.

Startups that didn't raise a round recently will have more difficulty going forward because of the importance of cash reserves. The frenzied pace of dealmaking has begun to slow after the first three months of the year. With the expectation that raising the next round might not be as easy, many investors advise founders to spend conservatively.

Growth-stage startups with a high burn rate, good but not great metrics, and 12 months of cash are the ones that are in the trickiest situation, according to Matt Turck, a partner at venture.

Kyle Stanford, a senior VC analyst at PitchBook, says that the mood among venture capitalists has already changed. The enthusiasm waned because of the economic factors that have already created a downturn in public markets. Mass layoffs in growth-stage startups are an indication that it already has, because it takes longer for those factors to affect private companies. Public tech companies have decided to cut down on hiring and marketing in order to hold off on IPO's by startups that had planned to do so. Larger companies, like Meta, have already implemented hiring freezes.