tl;dr: Despite a flood of layoff news, the situation doesn’t seem terrible. Yet.
Techland’s 2016 is off to a rocky start, at least according to the media.
What could be a hangover in tech is forming with news of down rounds, layoffs, and shut downs constantly bubbling to the top of Twitter feeds. As The Wall Street Journal adeptly points out, “with valuations falling, the other side of the equation is reappearing: Failure is often just around the corner.”
Trip Chowdhry, an analyst from Global Equities Research goes a step further, forecasting 330,000 layoffs in the coming months. For fun, here’s a small sample of dramatic headlines:
- Who Lives And Dies In A Down Economy
- For Silicon Valley, the Hangover Begins
- Yahoo to lay off 15% of its workforce as part of ‘aggressive strategic plan
- It’s been a bad month for tech layoffs
- Troubled Unicorn Zenefits Lays Off 17% Of Staff
Even if you don’t buy into the media fanfare — check Google News for more — the consensus seems to be that something is happening.
I wanted to find out what that something is, so I did a little research.
Who Is Firing Now
To understand who is laying off employees, I filtered through hundreds of news articles from the first 60 days of the year, pulling out clippings that concerned layoffs.
Most tech companies firing workers were public, private equity-owned, or subsidiary companies of larger corporations. This was not too surprising. Yahoo (laying off 15%), and GoPro (7%) have been in a trouble for months, EMC’s dealing with the Dell deal, and IBM is has been slimming for ages.
I then took that list of firms, and compared it to Mattermark data to sort out the companies that were privately funded tech startups.
The results were interesting:
- Only 37 were private, investor backed companies. Almost half of these were late stage companies, often a few years from going public, that couldn’t raise more money or are suffering from slower growth. Notably: SurveyMonkey (13%), Tango (28%), Kabam (8%).
- The other half of this cohort are mostly Series B and C companies that are at the inflection point — transitioning from solely chasing after audience to generating real revenue numbers. Notably: Birchbox (20%), Mixpanel (8%), VarageSale (33%).
Something else that I noticed is that regulatory risk is real for tech companies. FanDuel, a daily fantasy sports company that’s come under fire from state policymakers, let go of 55 employees in early February. Over in insurance world, Zenefits said goodbye to 17% of its staff (mostly in sales).
So How Bad Is It?
Anecdotes have an uncanny ability to make things seem worse than they may actually be. However, from what we’re seeing in 2016 thus far, the effects of this slowdown have yet to signal catastrophic disaster. The economic impact of layoffs could take months or years to materialize — it’s cheaper to stagger out those exits.
The bottom line is that companies with great execution and appropriate risk management measures will continue to raise money and create jobs even in uncertain times. For example,in the same time those layoffs happened, we saw about 800 companies get checks. There is still optimism for the coming days.
Editor’s Note: Kevin Liu is a member of Mattermark’s data team.