Tech Layoffs Analysis: Late-Stage Startups Are Hit Hardest

In the brutal sweep of layoffs hitting U.S.-based tech companies this year, late-stage startups have fared the worst, according to a Crunchbase News analysis of aggregated layoff data.

So far this year, more than 21,000 employees of U.S. tech companies have been laid off, a Crunchbase News tally shows.

Both public and private tech companies have issued layoffs, from streaming behemoths like Netflix to high-flying startups like Bolt. Just this week, cryptocurrency exchange Coinbase said that it will lay off 18% of its workforce, or around 1,100 people, only a year or so after going public.

But according to our analysis, it’s been late-stage venture-backed companies that have undergone layoffs most frequently this year. Fifty-three private companies—or more than half of the tech companies on Crunchbase News’ tech layoffs tracker—that have conducted mass layoffs this year have raised Series C or later funding.1

What’s happening

There are a couple reasons for that, according to Stefano Bonini, an associate professor at Stevens Institute of Technology whose research includes venture capital and corporate finance.

First, although today’s large, late-stage companies have more viable business models than the behemoths of the dot-com boom did, unicorns also tend to have one thing in common: they’re capital-intensive businesses.

That means as long as funding is abundant, they can raise money and support capital-intensive endeavors. But when VCs scale back—which they have this year, Crunchbase data shows—it’s more difficult for those large companies to raise money.

“Rather than focus on the top line, you focus on the bottom line,” Bonini said.

Some other data points from our analysis of tech companies in our layoffs database:

• The median amount of funding raised for a private tech company that initiated layoffs is $203 million.
• The median percentage of the workforce that was cut is 15%.
• Fintech was the sector that faced the most cuts, with companies including Klarna, TIFIN and Vise all laying off staff.

Where cost-cutting happens

The most obvious places to cut costs are headcount and discretionary spending like office space, Bonini said.

The layoffs are likely a preventative measure to help those large companies weather the storm. Of the private companies in the Crunchbase News layoff database, most raised money in 2021 or 2022, while a handful raised money in 2020.

Some of the most notable examples of companies to issue layoffs soon after raising funding are Stord, PolicyGenius and Convoy.

Atlanta-based startup Stord, for example, raised a $120 million Series D round in May 2022 before cutting jobs less than a month later. Similarly, Seattle-based logistics company Convoy raised $260 million in a Series E round in late April, and then laid off 7% of its workforce in early June. PolicyGenius laid off a quarter of its employees less than three months after raising $125 million.

If a company initiated layoffs soon after raising a round, it was probably a preemptive measure, Bonini said. The funding round was probably negotiated late last year or earlier this year, and the company likely anticipated that raising a follow-on round would be difficult, so they laid off staff.

Another possible explanation is “some renegotiations have happened and instead of walking away, VCs have requested some immediate actions to contain costs,” Bonini said.

Pain elsewhere too

While the current market volatility seems to be impacting late-stage companies the most, early-stage startups have gone through cost-cutting measures as well. Out of the 92 tech companies currently on our list, 19 were early-stage companies, or startups that had raised up to a Series B round of funding.

The same goes for public companies. At least 19 public tech companies have gone through layoffs this year, including Stitch Fix, PayPal and Root Insurance. 

It makes sense why the two ends of the spectrum have fared all right, while the middle—late-stage private companies—are in somewhat of a “valley of death.” Early-stage companies are likely smaller and have fewer costs to control, and an exit is much further off.

There’s also the possibility that early-stage layoffs are underreported.

As Bonini pointed out, early-stage companies may have been more agile with their spending and “might be able to maintain the course without as severe of cuts of the workforce as the other ones.”

As for public companies, there are fewer public tech companies than private ones.

Many late-stage companies were eyeing an exit coming into 2022 but don’t want to go public in the current market conditions. That means they need to control their costs to ride out the storm until an exit is on the horizon.

“What we’re going to see is a contraction but not a collapse,” Bonini said. “It’s probably a necessary readjustment of the focus that comes with some functions, but I think the message, at least from my perspective, is there’s a good deal of trust that these changes are implemented by companies to focus on revenue or profitability rather than growth.”

Methodology

We based this analysis on data collected as of June 15, 2022, from Crunchbase News’ layoff tracker, which rounds up layoffs at U.S.-based tech companies, both public and private. In some cases, when an international company with a large U.S. presence  such as Klarna, has gone through layoffs, that company has been noted.

Our layoffs database is based on media reports, data from the layoffs database layoffs.fyi, and layoff tips that have been submitted to and verified by Crunchbase News.

While our tally shows that more than 21,000 employees of tech companies based in the U.S. have been laid off this year, the actual number is likely much higher due to the fact that it’s unclear how many people were laid off from several of the companies on our list, and layoffs at many smaller companies may go unreported.

For our purposes, we’re defining “late stage” as companies that have raised a Series C round and beyond. In cases like that of Rhino, where the company raised multiple unnamed venture rounds after a Series A, we also consider them late-stage companies. We consider companies that have raised funding through a Series B round to be early-stage companies.

Illustration: Dom Guzman

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