Mass tech layoffs spawn new wave of startups
Great companies are made during a recession, so the saying goes. When we look back at major recessions throughout history, we found that some of today’s best-known US companies like FedEx, Microsoft, Hewlett-Packard, and Walt Disney, got their early starts during past US recessions.
In fact, about half of all Fortune 500 companies were created during a time of crisis. General Motors was created during the panic of 1907, Charles Schwab during the market crash of 1974 – 75, and LinkedIn was created in 2002, post dot-com bubble. The current recession is no different. The ongoing recession and mass tech layoffs have inspired the ingenuity of millions of people, startup founders, investors, and venture capitalists working together to come up with new ideas and turn the recession into opportunities.
According to Layoff.fyi, a website that tracks technology job losses, at least 1013 tech companies had laid off 153,160 tech workers since the site started to track the data early last year using data compiled from public reports. But it’s not all bad news for laid-off tech workers. A recent survey of new hires published in the Wall Street Journal found that most laid-off tech workers quickly found jobs shortly after beginning their search, as employers continue to struggle to find qualified workers in a tight labor market.
The survey, which was conducted by a ZipRecruiter, also found that about 79% of workers recently hired after a tech-company layoff or termination landed their new job within three months of starting their search. The percentage was just below the 83% share of all laid-off workers who were re-employed during the same time frame.
However, not all laid-off tech workers wanted to return back to the workforce. Some wanted to start their own business and launch their own startups. Among this group is Nic Szerman. He lost his job at Meta Platforms in November, just two months after joining the social media giant as a full-time employee. He later fell victim to a sweeping Meta’s 13% reduction of the workforce as the advertising market cratered.
A few days after he was let go, Szerman was back working, but this time, seeking investment for his own company Nulink, a blockchain-based payment tech startup. He has already sent pitches to startup accelerator Y Combinator and Andreessen Horowitz’s cryptocurrency fund looking to raise funds for his new company.
“As counterintuitive as it may sound, this layoff left me in a really good position,” the 24-year-old told Reuters. “Because I don’t have to pay back the sign-on bonus, I get four months of pay, and now I have time to focus on my own project.”
Turning challenges into opportunities, Szerman is part of a wave of would-be entrepreneurs and tech founders who are emerging from the ashes of the mass tech layoffs seen in Silicon Valley in the second half of 2022, according to a report from venture capitalists.
While the overall global VC funding fell by 33% to about $483 billion in 2022, investments in early-stage startups were robust, with $37.4 billion raised in so-called angel or seed rounds. The number was in line with the record set in 2021, according to Reuters, citing data from research firm PitchBook.
Help for The Would-be Entrepreneurs and Founders
Meanwhile, the laid-off tech workers turned entrepreneurs appear to be getting support from investors and venture capital firms looking for opportunities to invest in the next Google or Meta. One of these VC firms is Day One Ventures, a San Francisco-based early-stage venture fund. Touting the slogan “Funded, not Fired,” the VC firm launched a new initiative In November to fund startups founded by people who had been laid off from their tech jobs.
Day One Ventures said at the launch of the program that it aimed to cut 20 checks for $100,000 by the end of 2022. The firm added that it had received over 1,000 applications since the program was launched, most of them from tech workers who were let go by Meta, Stripe, and Twitter.
“We’re investing $2 million in 20 companies – if we just find one unicorn it almost returns the fund, which I think is a really unique opportunity for us as fund managers,” Day One Ventures co-founder Masha Bucher told Reuters.
“Looking at the last economic cycle, companies like Stripe, Airbnb, Dropbox have been created in crisis.”
Day One Ventures was not the only VC firm helping out laid-off tech workers. Multi-stage fund Index Ventures, which backed Facebook, Etsy, and Skype, was another VC firm that rolled out a similar program in November 2021. The firm launched its second Origins fund to invest $300 million in early-stage startups.
Austrian VC firm Speedinvest and another Silicon Valley investor U.S. Venture Partners also earmarked a similar amount for newly founded tech startup companies.
“With advances in game design, new innovations like cloud gaming, and the emergence of social networking in this sphere, gaming has really transcended into mainstream culture,” Sofia Dolfe, partner at Index Ventures told Reuters. “In every period of economic uncertainty, there is opportunity – to reset, re-prioritize and re-focus energy and resources,” she added.
Meanwhile, Szerman said his project was rejected by Y Combinator. He’s still waiting to hear back from Andreessen Horowitz. But added that other early-stage venture capitalists had expressed interest in his new company.
“I told the investors we’ll chat in two or three months,” he added. “I’ll focus on scaling the system now.”
Great Companies Rising Out of Recession Ashes
Some investors have compared the ongoing downturn to the early days of the dotcom crash of the early 2000s when many overvalued startups with no revenue and sales went bust overnight. However, but out of the dot com bubble ashes rose a wave of new tech companies such as eBay, Facebook, and YouTube.
“Many great companies have been created in relatively dark times,” said Harry Nelis, partner at investment firm Accel, who sees a new generation of risk takers emerge among the swathe of people left unemployed.