The Bad Times Are Coming for Startups

Last week, the employees of Cameo, a startup that sells custom celebrity videos, gathered for a hands-on meeting. The news was not good: almost a quarter of the staff were being fired.

“Today has been a brutal day in the office,” said Steve Galanis, the company’s CEO. wrote on Twitter right after the announcement. “I made the painful decision to drop 87 dear members of the Cameo Fameo.” In the answers, people were angry. By 2021, Cameo had had a great job hiring and many of the layoffs affected people who had worked there for less than a year. It didn’t help that Galanis ’Twitter avatar was a Bored Ape NFT.

A few hours later, Doug Ludlow, CEO of the fintech startup Mainstreet, announced which had cut 30 percent of the company’s employees. “We took this action because we believe there is a high probability that today’s incredibly rough market will only get worse.” Ludlow tweeted“and potentially remain so for months, if not years.”

The layoffs, and the language around them, are a far cry from the optimism of the past two years, when venture capitalists went through multimillion-dollar businesses like canapés in a cocktail party. The rise in valuations and the rise in IPOs made startups seem like a safe bet, inspiring hundreds of new venture funds. Now, the party seems to be ending abruptly, and the downsizing may indicate even worse times.

Since January, nearly 50 startups have made major layoffs, according to data collected by Among them are companies such as Robinhood and Peloton, which after a great growth during the pandemic are now facing the reality of a less dynamic economy with less cash in hand. Startups like Cameo have had to reverse their spending for the past two years; Galanis told The Information that the layoffs were a “painful but necessary” course correction to “balance our costs with our cash reserves.”

Cash reserves will be increasingly important to withstand the storm – startups that haven’t raised a round recently are likely to have more difficulty moving forward. The first three months of 2022 set a record for making venture capital deals among start-ups in the late stages, but this frantic pace has begun to slow. Now, many investors have advised founders to spend conservatively with the expectation that raising the next round might not be so quick.

“Right now, the startups that are in the most complicated situation are growing startups with unicorn-type ratings, a high combustion rate, good but not excellent metrics, and 12 months of cash,” says Matt Turck , venture capital partner. Firstmark firm. “You’ll see a lot of layoffs there, because companies urgently need to reduce their burn if they don’t want to run out of cash.”

The mood among venture capitalists has already changed dramatically since 2021, says Kyle Stanford, senior VC analyst at PitchBook. Enthusiasm has declined, in part, due to broader economic factors — rising interest rates, inflation and geopolitical uncertainty — that have already caused public markets to fall. These factors take longer to affect private companies, but the massive layoffs of growing startups are an indication that it already has. Startups that had planned to go public in 2022 have largely stopped doing so, and public technology companies like Uber have decided to cut back on marketing and hiring. Larger companies, such as Meta, have already implemented hiring freezes and warned staff that cuts could come.

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