Bad news for the startup sector, which is experiencing an unprecedented crisis and nervousness has entered the industry. According to data collected by Layoffs.fyi, a tracker of tech layoffs, these increased in May by 350% worldwide. Matías Bonet, CEO of Smashforward, CTO of lemon.markets and expert in founding and investing in startups, predicts that “This negative trend will affect even startups that have recently raised a round. In Europe, there will be a significant reduction in the demand for employment in startups, being more selective and reducing their hiring by up to 80%.
During the pandemic, investors were really bullish on tech startups. lockdowns and restrictions forced the population to digitize, both their consumption habits and their way of relating. This change in the social paradigm towards a practically technological reality pushed venture investors to inject large levels of capital into the tech sector, raising the value of its shares on the stock market to record highs. However, the new trend points to a decline in investor interest in these businesses.
Thus, despite the fact that 2022 seems to be marked by a decrease in investment in startups, this situation offers the opportunity for small and medium-sized companies to be more competitive, compared to other larger companies. In this sense, it should be noted that hiring talent has been one of the biggest problems for the development of this type of tech company, since, due to its nature, they could not match the offers that the big startups offered to their new talent. Matías Bonet points out that “In recent years, the most powerful startups have been the ones that have had the easiest time attracting digital talent. However, the current scenario, where these companies will see foreign investment in their projects decrease, becomes an opportunity for small and medium startups, that they will be able to be more competitive and will have a greater opportunity to attract talent”.
The last cartridge to survive
Hiring reductions and mass layoffs are a common option for startups to increase the amount of time they can survive before running out of capital. According to Matías Bonet “between 7 and 12% of startups that still have not found a solid market for their product, such as those that offer financial products, will be forced to reduce staff. They will have the minimum team until they start generating income.”
Along the same lines, Bonet predicts that outsourcing and consulting companies will also be affected. Broadly speaking, Bonet points out that “between 20%-30% of the projects linked to startups will be cancelled. In Poland, for example, several outsourcing companies have observed that their pipeline has been reduced and benching has increased”.
In addition, Bonet also foresees that “The adjustments in the workforce and the decrease in the hiring trend will continue for the next 6-9 months and, precisely for this reason, the management teams of many startups are working on the roadmap to execute in the coming weeks” .
Disturbances in both public and private stock markets are marking the 2022 of the technology industry. The geopolitical problems, inflation which can already be seen in large cities such as New York and rising interest rates are shaking the market. European startups are beginning to feel pressure from layoffs after large layoffs of large and well-known brands such as Getir, and Klarna, which in May alone laid off 4,480 and 700 employees, respectively. While large companies established in the market such as Meta, Twitter, Microsoft and Netflix have frozen hiring.
