In May, Venture capital firm Sequoia has circulated a memorandum of understanding between the founders of the startup. The 52-page presentation warned of a challenging road ahead, paved by inflation, rising interest rates, a Nasdaq downturn, supply chain problems, war and general economic fatigue. Things are about to get difficult, and this time, venture capital won’t come to the rescue. “We believe this is a pivotal moment,” the company partners wrote. “Companies move the fastest and have the most runways and are most likely to avoid the death spiral.”
Many startups seem to be heeding Sequoia’s advice. The mood took a turn for the worse as founders and CEOs cut the 2021 excess from their budgets. Most importantly, these cuts have impacted headcount. More than 10,000 start-up employees has been laid off since the beginning of June, according to layofftracker.com, cataloging job cuts. Since the beginning of the year, the tally is close to 40,000.
The latest victims are crypto companies, and the carnage is no small feat. On Tuesday, Coinbase fired 1,100 employees, abruptly cut off their access to the company’s email accounts and locked them out of the company’s Slack. Those layoffs come just days after Coinbase job offer canceled from more than 300 people plan to start working there in the coming weeks. Two other crypto startups—BlockFi and Crypto.com—Hundreds of jobs off Monday; Cryptocurrency exchange Gemini also fired about 10 percent of employees earlier this month. Collectively, more than 2,000 employees of crypto startups have lost their jobs since the beginning of June – about a fifth of the total number of startup layoffs this month.
The conversation around crypto companies has changed dramatically in the last year. In 2021, they are the darling of venture capitalists, who have provided them with billions of dollars to fund the massive growth. Coinbase, going public in April 2021 at $328 a share, seems to hint at an emerging goldmine in the sector. Other companies, like BlockFi, started recruiting aggressively with the ambition to list shares. Four successful crypto startups expensive primetime commercials in the most recent Super Bowl.
Coinbase is also focused on hyper-growth, expanding its staff from 1,250 people in early 2021 to around 5,000 people by 2022. “It’s clear to me that we’re over-recruiting,” said Brian Armstrong, Director. Coinbase executives, wrote in a blog post on Tuesday, where he announced the layoffs. “We’re growing too fast.”
“Cryptocurrency can be likened to a canary in a coal mine,” said David A. Kirsch, associate professor of strategy and business at the Robert H. Smith School of Business at the University of Maryland. He describes the contraction in crypto startups as a potential signal of “a great unraveling” where more startups are judged on how well they can perform. its promises. If history is any indication, those cannot be identified as “death spirals”.
Kirsch spent years researching Lessons from past failures; he is also the author of Bubbles and Crashes, a book about boom cycles in technology. Kirsch says that bubbles tend to burst first in high-leverage, high-growth sectors. For example, when Nasdaq fell in 2000, the value of most e-commerce companies disappeared “before the decline of the broader market.” Companies like Pets.com and eToys.com – which had massive and massive public launches – eventually went bankrupt.