Tech layoffs this year offer hiring boon for start-ups that survive

TAIPEI – Thousands of layoffs across the tech sector could be a boon for start-ups struggling to hire talent in the heady days of high valuations.

The big catch: They need to ensure their own survival first after the venture capital investors pull out in 2022.

The history of Silicon Valley is full of stories of companies that were founded, or gained traction, on the ruins of the recession.

Amazon.com and Google, now known as Alphabet, are among the big winners from past economic downturns. Google rose from the ashes of the dot.com bust in 2000 after it hired so many engineers who were laid off elsewhere, history professor Margaret O’Mara from the University of Washington told Bloomberg’s Odd Lots podcast.

They are now the fourth and fifth most valuable companies in the world.

The caveat is that start-ups need to already have money from previous funding rounds because the main sources of financing, venture capitalists, are more cautious than ever.

Total funds in the third quarter fell 34 percent from the previous period, and 55 percent from a year ago, to US$74.5 billion (S$100 billion), according to market intelligence provider CB Insights. That was the lowest level in nine quarters.

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Funding from mega-rounds, where the money invested in a start-up is at least US$100 million, has fallen to just a third of the level seen last year, the company found. A 42 percent drop in the value of new VC deals globally through the end of November puts that figure on track for the deepest fall in two decades.

Instead of driving valuations even higher – creating unicorns with market values ​​of more than US$1 billion – investors are keeping their powder dry and focusing on the stakes they already have in young companies.

That has resulted in a reduction in the average deal size for investments in late-stage startups.

“VCs are prioritizing funds in existing portfolios that are fundamentally strong, but may have a difficult time funding the raise in a very difficult environment, to help extend their runway until market-raising improves market,” said Ms Tina Cheng, managing partner at Cherubic Ventures in Taipei.

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Even young companies with cash on hand remain cautious because they don’t have the ability to see when they might raise money next, he added.

Many people who lose their jobs are also in no rush to find a new job, thanks to generous severance packages and years of heavy workloads that have left many burned out.

Mr Elon Musk’s purchase of Twitter has led to the loss of more than 3,700 jobs, making it the most popular of tech layoffs. Many were offered three months’ salary as part of their departure package.

Twitter’s cuts aren’t the first or the biggest. Meta Platforms, formerly known as Facebook, cut 11,000 jobs, while Amazon let go about 10,000.

More than 142,000 jobs were lost at 889 tech companies in 2022 alone, according to Layoffs.fyi, an open-source list of global redundancies created by San Francisco-based start-up founder Roger Lee.

Heavy job losses in tech are offset by increases in other sectors, including leisure, hospitality, health care and construction, November data from the Bureau of Labor Statistics show.

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With the eternal spring of money drying up, venture capitalists advise their investee companies to learn to stand on their own.

“In a bear market, everyone has to get their money from customers. So go out, get your money from customers and don’t look to the venture community,” said venture capitalist Tim Draper. He also recommends that those who may face a cash crunch be more careful with headcount.

“I recommend that companies like this cut their team quickly and effectively, and move on,” he said. “The flip side is you see these extraordinary companies come out at times like this. As a venture capitalist, I don’t want to miss that.”

Such Fomo – fear of missing out – that drives much of the Silicon Valley hype cycle is not far off. Although times are tough right now, thousands of smart and recently laid off people are about to plug into the next big thing. And those with a lot of money want to make sure they don’t miss the trip. BLOOMBERG

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