Fintech startup Bolt was one of the first tech companies to slash jobs, cutting 250 employees, or a third of its staff, in May. For some workers, the pain of layoffs was a shock not only because they were the first, but also because the cuts came just four months after Bolt had announced a $355 million series E funding round and achieved a peak valuation of $11 billion.
“Bolt employees were blind sided because the CEO was saying just weeks ago how everything is fine,” an anonymous user wrote on the message board Blind. “It has been an extremely rough day for 1/3 of Bolt employees,” another user posted. “Sadly, I was one of them who was let go after getting a pay-raise just a couple of weeks ago.”
An analysis by Protocol of layoffs and funding rounds by more than 400 startups between seed and series E revealed that, on average, firms conducted layoffs just three months after publicly announcing funding rounds. While most firms fell into the range of cutting staff two to three months after making funding announcements, a handful of companies waited two weeks or less after going public about funding rounds before making layoffs.
Are firms blowing through millions in the weeks after the check is deposited in the bank? Experts told Protocol that it's more complicated than that. Startups wait several months to a year after venture capital checks hit their bank account before going public with the news, but the delay can result in terrible optics and often a feeling of betrayal among those laid off.
Keeping it quiet
“By the time we're hearing about private companies raising capital … it's not actually reflective of when that work was actually done,” said Susan Alban, partner at Renegade Partners. A founder may not want their competitors to know about funding, or want to wait until there are other announcements to tack onto a funding round, like a product release or a new executive hire, to do a press push.
Funding details become more exclusive the bigger an organization gets. At a company with 100 employees, it's easier to keep the news of a major hire or a big VC check from slipping. But at a company with 2,000 people, “announcing it internally is announcing it publicly,” said Alban. “Even if you know everyone is under an NDA, you don't announce something at an all-hands with 2,000 people without expecting that it's going to be leaked.”
Like Bolt, Trade Republic, HomeLight, and Stord all drew attention from funding announcements that happened just weeks or days before layoffs. Delivery startup Getir laid off thousands just over two months after receiving more than $700 million in funding.
“The communication was handled poorly, no empathy towards the unlucky ones, only words on concentrating efforts and impact,” one former employee of Trade Republic posted on Glassdoor.
“Literally fired the best workers and now it’s awful,” a Getir employee wrote on Glassdoor in the weeks following its layoffs. “[Getir’s] not gonna last the year.”
One former HomeLight employee’s Glassdoor post had an overall positive review of their experience at the company, but said that “it definitely hurt” to be part of its wave of layoffs. “In our town halls for the past 3-4 months … we were all repeatedly told that ‘HomeLight is in a good position where we don't think [layoffs are] going to be an issue for us,’” the poster wrote. “It was pretty jarring to just to sign on to work one morning, get an email saying that there would be layoffs, and then get that dreaded meeting an hour later.”
Blame the economy
Most of these companies doing layoffs right after announcing funding blame the rapid shift in economic conditions. Plus, big funding announcements don’t always equate to a company’s financial health. Travel startup Pollen cut staff after raising funding and collapsed just three months later.
Though it’s impossible to know the financial guts of a company from the outside, many will conduct layoffs to extend their runway, Anthony Kline, partner at The GP, told Protocol. Prior to the recent downturn, venture capitalists were “seeing a bit of a gold rush” in tech. But as things have slowed, funding rounds have become harder and harder to come by. “You're able to see the caboose now; you're not gonna see, like, an infinite line of cars.”
As the economy shifted, so did the role of the founder and CEO, Kline said, changing from “growth product leader to resource allocator.” Jobs that don’t directly align with generating revenue or are duplicate roles are first on the chopping block.
“If they don't assume that there's some additional round of funding that’s 12 months out, it might be 24 or 36 months out, then they have to be a little bit more creative and a little bit more resourceful,” Kline said.
It sucks no matter what
It’s difficult to predict if a company will have rocky times ahead, but smart leaders can plan ahead about when to announce funding. If the announcement comes months or a year after closing the round, it gives the illusion that a company is doing better than it is. And, optics aside, layoffs after funding announcements (and in general) are a blow to internal morale. Doing them in a transparent and thoughtful way is crucial.
Having employees be in the know about company details, financial standing, and what the future of the company looks like might help ease the blow of layoffs. “If people understand what their purpose is in a company, and that you see them for what it is that they're fulfilling, and you're helping this company succeed, that is like a tried-and-true strategy, and it takes time, it takes dedication, and I think it takes a lot of thoughtfulness from a founder,” said Kline.
Being present with your staff amid layoffs, especially in a time of increased remote work, is important to let employees know you’re not disconnected and you’re listening to how layoffs impact them.
“You see a lot of situations where a founder is so preoccupied with allocating resources, talking to investors, or talking to customers, that they're spending most of their time externally and less so internally,” Kline said.
