Hello everyone and welcome to ZDTech, ZDNet’s daily editorial podcast. My name is Guillaume Serries, and today I’m explaining to you why the most important startups, the unicorns, are starting to lay off workers, and why this can be the first symptom of a bubble all ready to burst.
In a few days the announcements of record fundraising were replaced by layoff plans in the small world of startups of weight, the unicorns. To the point of talking about a mini-crash.
Take the Swedish Klarna, a brand new giant of split payment. Well, Klarna is going to lay off 10% of its workforce, or around 500 people, in Europe and the United States. The reason ? The turnaround in the economic situation, which caused its valuation to fall.
A capital-intensive business
Yet the company, which raised $1.6 billion in 2021, is a leader in this new business poised to compete with the traditional world of consumer credit.
Yes, but now, if Klarna is one of the first digital giants to be affected by the economic downturn, it is because its credit activity is very capital intensive. And that capital, with the rise in interest rates, has become much more expensive than a few weeks ago.
Central banks are turning off the free money taps, and the fall in the stock markets, starting with the Nasdaq, is leading to a decline in the capitalizations of tech players.
Credit players are not the only ones to hit bottom, failing to raise it
A double Kiss Cool effect which particularly pounded companies in the BNPL sector, for buy now pay later.
Sebastian Siemiatkowski, Klarna’s big boss, acknowledges in a letter sent to his employees that the world of May 2022 is very very different from that of November 2021, when Klarna’s development strategy was laid out.
Still, credit players are not the only ones to hit bottom, failing to lift it.
Getir, the Turkish delivery startup, also plans to lay off 14% of its staff globally.
“Growth at all costs is no longer rewarded”
Valued at 12 billion dollars, this little giant, now 7 years old, delivers groceries in a few minutes in major European cities. It employs nearly 32,000 people. 4,480 employees should quickly find themselves outside.
Again, running a box like Getir requires large cash outlays. To put it bluntly, Getir does not earn money and spends its fundraising on user base acquisition.
The $768 million that Getir has raised so far has been spent on this. And it is very difficult to know, from an external eye, how much of this war chest remains to function.
Yesterday one of Getir’s big rivals in Europe, Gorillas, also announced the dismissal of 300 people.
Klarna and Getir may not have anything in common from the point of view of their activity. But both are backed by an all-powerful investment fund, named Sequoia.
And this famous venture capital fund sounded the alarm this week for the companies in its portfolio. Be careful, the storm is coming explains the fund, get ready, it will shake.
A slide from the presentation was titled, I quote, “Growth at any cost is no longer rewarded.”