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Ninefold increase in startup layoffs in Q2 follows economic uncertainty

Industry set to readjust to new realities of raising cash

The second quarter of 2022 has seen more than nine times the number of layoffs from tech startups than the first, according to industry figures.

From April to June, tech startups recorded 289 layoff events compared with just 31 from January to March, figures aggregated by website show.

The combination of high inflation, slowing economic activity, and rising interest rates continues to hit startups as the number of companies announcing layoffs has already reached 238 in the third quarter.

The picture is similar for the number of staff shown the door over the same period. Estimates suggest 9,829 were affected in the first quarter, a figure which more than trebled to reach 37,463 in Q2, the research found.

Commenting on the figures, Florian Zandt, data journalist with research site Statistica, noted that online used car retailer Carvana slashed its workforce by 2,500 employees in May, while the staff cuts among more notable examples in this time frame like Netflix or PayPal were comparably minor. The "crypto winter" has also contributed to the trend, he said, as exchange Coinbase let go between 20 percent and a third of its workforce.

Since the financial crisis, investors have been buoyed by a combination of prolonged ultra-low interest rates and quantitative easing – purchasing long-term bonds from banks with "printed" central bank money – offering VCs a source of cheap money to back startups. As both trends are coming to an end, it makes it harder to access capital.

Last month, John-David Lovelock, distinguished research vice president at Gartner, told The Register this was more like a return to normality, which would not have a severe impact on the wider tech sector. "With the promise of great recurrent revenue [SaaS and cloud companies, for example], venture capital funds had access to virtually free money and they were throwing cash around. Now we're seeing VCs are saying it's become incredibly hard to raise money now. No, it's normal," he said.

Tech giants, as well as startups, have also let staff go in order to adjust to the new economic reality. Oracle staff have reported redundancies in CX and marketing teams, while Microsoft has insisted its resizing is not linked to recession fears. ®

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