Fear and Loathing Back to Tech Start-Ups

Workers are starting to come to 2022 hoping for another year of cash-gushing for the first time to the public. Then the market tanked, Russia invaded Ukraine, inflation ballooned, and flowers rose. Moving to the public sector, start-ups are starting to cut costs and lay off employees.

People are starting to throw away their starter kits, too.

The number of people and groups trying to pull off their start-ups doubled in the first quarter of the year since last year, said Phil Haslett, founder of EquityZen, which helped the company private and their employees sell their stock. The share price of some billion start-ups, called “unicorns,” has fallen from 22 percent to 44 percent in recent months, he said.

“It was the first downturn in the industry that people have seen in 10 years,” he said.

That’s a sign of how the world began to trade easy-money ebullience from the last decade is gone. Every day, reports of a steady decline come across social media coverage of other start-up cuts. And what was once seen as a path to enormous wealth – with start-ups – is now viewed as a liability.

The turn is fast. In the first quarter of the year, venture capital funding in the United States fell 8 percent from a year earlier, to $ 71 billion, according to PitchBook, which tracks revenue. maker. At least 55 technology companies have reported layoffs or closed since the beginning of the year, compared with 25 times last year, according to Layoffs.fyi, which oversees layoffs. And IPOs, the main source of cash outflows, fell 80 percent from a year earlier on May 4, according to Renaissance Capital, which followed the IPOs.

Last week, Cameo, the famous shouting app; On Deck, a service provider company; and MainStreet, the start-up financial services company, have all lost at least 20 percent of their employees. Fast, start payment, and Halcyon Health, an online provider, closed quickly last month. And food delivery company Instacart, one of the most significant start-ups of its generation, reduced its value to $ 24 billion in March from $ 40 billion last year.

“Everything that has been true in the last two years is now untrue,” said Mathias Schilling, chief investment officer at Headline. “Growth in value is simply not enough anymore.”

Start-ups are seen as a time of fear and dread in the last decade. Each time, the business returns and sets up the data. And there is more money to keep companies’s down: Capital investments rose a record $ 131 billion last year, according to PitchBook.

But the difference now is a clash of business issues combined with the understanding that the start-up of a global business frenzied attitude from the last few years is due to a count. A decade-long run of low interest rates that puts investors at greater risk of starting a large business has passed. The war in Ukraine causes unpredictable macroeconomic ripples. Inflation does not seem to decrease all the time anytime soon. Even high-tech companies have fallen, with the share of Amazon and Netflix falling below their prevalence.

“Every time we said it was like a bubble, I thought it was a little different,” said Albert Wenger, a dealer at Union Square Ventures.

In the media, investors and manufacturers have issued constant warnings, comparing negative sentiment to the In the early 2000s dot-com crashed and that reversal is “a fact.”

Even Bill Gurley, a Silicon Valley venture capitalist who was tired of early warnings about the bubbly behavior in the last ten years that he gave up, is back on the list. “The ‘uneducated’ way can be painful, confusing and frustrating for many,” he said. sau in April.

The uncertainty has caused some venture capital firms to delay operations. D1 Capital Partners, which participated in about 70 start-ups last year, told developers this year that it had dropped its new investment for six months. The company said all reported contracts were struck before the delay, saying two people were aware of the incident, which was denied because they had no right to speak in the records. .

Other companies have lowered the cost of their insurance to match losing trades. Sheel Mohnot, an investor at Better Tomorrow Ventures, said his company recently cut investments in seven start-ups it has invested in out of 88, mostly. it was done in a month. The turnaround was better compared to the previous few months, when investors asked the developer to spend more money and use it to grow faster.

The truth has yet to fall on some investors, Mr. Mohnot said. “People do not know how to measure the changes that have taken place,” he said.

Traders are experiencing whiplash. Knock, a start-up company based in Austin, Texas, expanded its operations from 14 cities to 75 by 2021. The company plans to go public through a specialized search company, or SPAC. , valued at $ 2 billion. But as the market became rock solid in the summer, Knock abandoned this campaign and preferred to sell himself to a larger company, which he refused to disclose. out.

In December, the recipient of the stock fell by half and canceled the contract as well. Knock eventually raised $ 70 million from its existing venture capital in March, laid off nearly half of its 250 employees and added $ 150 million in debt. invested in a contract worth just over $ 1 billion.

Throughout the roller-coaster years, the Knock industry continues, says Sean Black, founder and CEO. But many entrepreneurs who he pitched ignored.

“It’s frustrated that the company knew you were hitting it, but they just affected everything the ticker said today,” he said. “You have this great story, this amazing growth, and you can not resist this industry.”

Mr Black said his experience was no different. “Everyone is quiet, shy, embarrassed by this and refuses to talk about it,” he said.

Matt Birnbaum, chief technology officer at investment firm Pear VC, said companies need to carefully manage employee expectations around the cost of their products. business started. He predicts skepticism for some.

“If you are 35 years of age or younger in technology, you may not see a low-cost business,” he said. “What you have been brought to do is and follow your entire career.”

Startups that went public during the crisis of the last two years have been pummeled in the retail sector, even more so than the entire tech sector. Shares on Coinbase, the cryptocurrency exchange, have fallen 81 percent since its debut in April last year. Robinhood, the app market that experienced explosive growth during the spread, is 75 percent marketed below its IPO value. Last month, the company laid off 9 percent of its employees, accusing it of “hypergrowth.”

SPACs, which have been a great way for small companies to go public in recent years, have become so bad that some are now turning to others. SOC Telemed, an online medical startup, will go public with such a car by 2020, valued at $ 720 million. In February, Patient Square Capital, the investment firm, bought it for around $ 225 million, 70 percent lower.

Others are in danger of running out of cash. Canoo, the electric car company that went public in 2020, said on Tuesday that it had “a lot of skepticism” about its ability to stay in business.

Blend Labs, a financial services company, is starting to focus on lending, worth up to $ 3 billion in private equity. Since it went public last year, its value has dropped to $ 1 billion. Last month, it said it would cut 200 employees, or about 10 percent of its staff.

Tim Mayopoulos, Blend’s chief executive, criticized the situation in the mortgage industry and the slowdown in rebates with rising interest rates.

“We are looking at all of our debts,” he said. “The growth of the gold bullion industry is, from an investor-minded point of view, clearly opposed.”

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