In May, the Venture capital firm Sequoia distributed a memo among its startup founders. The 52-page report warned of a challenging road ahead, paved by inflation, rising interest rates, a Nasdaq drawdown, supply chain problems, war and general tiredness to the economy. Things are about to get tough, and this time, venture capital won’t come to the rescue. “We believe this is a pivotal time,” the company’s partners wrote. “The companies that move the fastest, have the most runways, and are most likely to avoid a death spiral.”
Many startups seem to be taking Sequoia’s advice. That sentiment turned downright mourning as founders and CEOs slashed their 2021 over-budget from their budgets. Crucially, these layoffs impacted headcount. More than 10,000 startup employees have been laid off since the beginning of June, according to layofftracker.com, which categorizes layoffs. Since the beginning of the year, the number has approached 40,000.
The latest victims are crypto companies, and the losses are not small. On Tuesday, Coinbase fired 1,100 employees, abruptly cut off access to the company’s email accounts and locked them out of the company’s Slack. The layoffs come days after Coinbase removed the jobs of more than 300 people who were planning to start working there in the coming weeks.Two other crypto startups — BlockFi and Crypto.com— Hundreds of layoffs every Monday; cryptocurrency exchange Gemini also laid off about 10% of its workforce earlier this month. More than 2,000 employees at crypto startups have lost their jobs since the beginning of June — roughly one-fifth of all startup layoffs this month.
Last year, the conversation around crypto companies suddenly changed. In 2021, they are the darling of venture capitalists, pouring billions into them to fund aggressive growth. Coinbase went public in April 2021 at $328 per share, seemingly suggesting a nascent gold mine in the industry. Others, like BlockFi, started hiring aggressively, going public with ambitions. Four cryptocurrency startups ran expensive primetime ads during the recent Super Bowl.
Coinbase is also focusing on high growth, expanding its workforce from 1,250 in early 2021 to about 5,000 in 2022. “It’s clear to me now that we overhired,” Coinbase CEO Brian Armstrong wrote in a blog post on Tuesday, where he announced layoffs. “We grew up so fast.”
“Maybe cryptocurrencies are the canary in the coal mine,” said David A. Kirsch, associate professor of strategy and entrepreneurship at the University of Maryland’s Robert H. Smith School of Business. He described the shrinkage of crypto startups as a potential for “a huge disruption.” Signal, in this case, that more startups are being assessed for their ability to deliver on their promises. If history is any indication, those who are not doomed to a “death spiral”.
Kirsch has been studying lessons from past crashes for years.He is also the author bubbles and crashes, A book about the tech boom-bust cycle. Kirsch said bubbles tend to emerge first in highly leveraged, high-growth industries. For example, when the Nasdaq fell in 2000, the value of most e-commerce companies “disappeared long before the broader market fell.” Companies like Pets.com and eToys.com — which made a splash in the public eye — eventually went bankrupt.