Startups

The tech layoffs are here. What comes next?

This is a humbling economic moment.

Written by Technically Media CEO Chris Wink, Technical.ly’s Culture Builder newsletter features tips on growing powerful teams and dynamic workplaces. Below is the latest edition we published. Sign up to get the next one.


At least one small venture capital firm has halved the target size for its next fund. In January, they were projecting to raise $100 million. They’re now looking to close below $50 million.

The founder of a different smaller-scale addition to a wave of new funds is still planning to reach his goal of a $10 million fund, but he acknowledges change is coming quickly.

Like anyone in finance, these fund managers are watching “market conditions,” in the familiar business jargon. Those conditions remain mixed.

The number of job openings in the United States decreased in June to 10.7 million, according to the latest data released from the Bureau of Labor Statistics. That’s just the kind of cooling that central bankers want to see to curtail high inflation — there are still two job openings for every jobseeker. Unemployment remains low, and job growth is still strong. The American economy shrunk in both of the first two quarters of 2022, but economists don’t yet have consensus that we’re in a recession. Business creation is surging.

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No one questions we’re in a humbling moment though.

Early-stage ventures and many tech companies often command high valuations relative to their earnings because they’re bets on a brighter future. The related pair of rising interest rates and worrisome inflation make that future less bright. So valuations have collapsed.

In turn, layoffs are mounting — yes, even at high-profile tech firms. More than 32,000 tech workers have been part of mass layoffs in 2022, according to a Crunchbase tally, including from tech giants like Netflix, Tesla and Twitter. Other major examples from just recent weeks include:

Google’s parent company Alphabet, Facebook and nearly every other major company has enacted hiring freezes, made cuts or projects to do so. Highly technical roles are more secure but not immune.

Morale will sag but it’s necessary to put this in context, especially for those working in or around technology. You’re going to be OK. Some of this pain is the very necessary consequence of over-indulgence in a pandemic high.

Shopify CEO Tobias Lutke said in a memo that his company hired as if COVID-19 meant consumer trends toward ecommerce over physical retail would “permanently leap ahead by 5 or even 10 years.” As he wrote: “It’s now clear that bet didn’t pay off.”

It doesn’t make this any less traumatic, but we need a slower economy. Now what?

As one executive advises: “Think like a scout.” An economic downturn is time to focus on the value you and your company create. Find the next opportunity.

Declining private company valuations and flagging venture capital investments do have consequences across the American economy, though. The mentality of new VC fund managers is telling. Those I spoke to aren’t cowering. They are adjusting. More reasonable valuations and a less outrageous hiring environment will be better for their portfolio companies, they say. One told me he remembers how thankful he is to do what he loves. Two-thirds of VC firms never even raise a second fund.

“We’re excited to spend more time in the trenches with founders we’ve invested in in the next few months,” a fund manager wrote. “Take a long term view.”

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