Big Things

9 big things: Lost jobs litter the startup landscape

April 12, 2020 View comment (1)
The Labor Department announced this week that another 6.6 million Americans have filed for unemployment, taking the number of total claims over the past three weeks of coronavirus chaos to nearly 16.8 million. Somewhere around 5% of the US population is now out of a job—and that's only those who have formally applied for benefits. 

It's a completely unprecedented spike. But then again, we live in unprecedented times. And startups, of course, haven't avoided the carnage. 

Job losses continue to mount at some of the buzziest and most well-funded startups around, which is one of nine things you need to know from the past week:
 
The empty chairs are adding up in Silicon Valley. (Westend61/Getty Images)

1. Layoff laments

The coronavirus outbreak and ensuing shutdowns have hit some industries harder than others. That's reflected in some of the most notable VC-backed companies that have parted ways with workers in recent days, either temporarily or permanently. 

And there are fears in the industry that the damage could continue for quite some time.

The near-total evaporation of travel and tourism is bad news for Oyo, an Indian hotel-chain startup. The company announced this week that it will put "a significant number" of employees on furlough, or unpaid leave, with reports indicating the number is in the thousands. This comes on the heels of 5,000 job cuts in March, during the early days of COVID-19's global spread. It's believed none of Oyo's workers in India will be affected until that country's lockdown ends. But it's still a worrisome time for a startup that was reportedly valued at $10 billion just four months ago. 
 
A lack of travel is also hammering Away, a luggage unicorn that had already experienced a bumpy few months before a pandemic arrived. This week, the company laid off 10% of its workers and furloughed a further 50%, citing sales figures that have plunged more than 90% in recent weeks. 

The emptying of office buildings and the shuttering of restaurants is proving a harmful combination for ezCater, a corporate catering startup valued at $1.25 billion last year, according to PitchBook data. The company reportedly laid off 400 of its 900 employees this week. As ezCater told Axios, "There is not enough sugar on the planet to sugarcoat this."

Restaurant closures are also causing hard times at Toast, a creator of point-of-sale software for eateries. Less than two months ago, the business raised $400 million in VC at a $4.9 billion valuation, according to PitchBook data. This week, it either laid off or furloughed about 50% of its workforce, reportedly accounting for well over 1,000 job losses. 

For at least one startup, it was the layoffs at other companies that led to layoffs of its own. Reports emerged this week that AngelList has cut jobs from its talent unit, which provides hiring help for startups. With few companies hiring, it's become a division with little to do. 

That's just the damage from recent days. Look back over reports from the past few weeks, and the list grows longer. The lack of travel has caused layoffs at companies such as TripActions and Zeus Living. Social-distancing measures contributed to job cuts at names like The Wing and ClassPass. Lockdowns have led to layoffs and furloughs at scooter startups Bird and Voi. Not even well-funded unicorns like Rent the Runway and Compass have been immune. 

Lux Capital partner Bilal Zuberi weighed in on Twitter: "We are only starting to see startup layoffs, and many many more are to come," he wrote. "So many startups are absolutely crushed."

Hunter Walk, a partner at Homebrew, responded: "I don't think it's crazy to predict like 80% of startups will have to cut between 10-50% of employees over next 2-4 quarters."

We're still a long way from that scenario. But there's a real chance that the cascade of lost startup jobs is just getting started. 

2. WeWork sues SoftBank

In some ways, it seemed inevitable that the long, unusual saga of WeWork and SoftBank would end up in the courts. Now, here we are. The special committee of WeWork's board filed suit against SoftBank this week after the Japanese company pulled out of a planned deal to buy $3 billion worth of secondary shares in WeWork, alleging breaches of contract and fiduciary duty. It's the latest twist in a roller-coaster journey for SoftBank and its massive Vision Fund.

3. Airbnb stays busy

On Monday, Airbnb announced $1 billion in new debt and equity funding from private equity firms Silver Lake and TPG Sixth Street Partners, with later reports indicating those backers will receive warrants that can be converted to shares at an $18 billion valuation—a far cry from the $31 billion figure that came with Airbnb's latest VC round. But even that 10-figure funding might not be enough for the ailing vacation rental company: On Tuesday, reports emerged that Airbnb was still considering taking on as much as $1 billion in additional debt funding.

4. Cancellations continue

More and more deals that were lined up before the coronavirus crisis are now falling by the wayside. Major aerospace suppliers Woodward and Hexcel called off a planned merger this week that would have valued Hexcel at $6.4 billion. PE firm TriArtisan Capital Partners will have to look for a new exit route from TGI Friday's after a planned $380 million sale fell apart this week. And EQT is walking away from an agreement to buy Metlifecare, an operator of retirement homes in New Zealand, for NZ$1.49 billion (about $900 million).
 
TGI Friday's will remain in PE hands for at least a while longer. (Mike Mozart/CC BY 2.0)

5. Crisis mega-funds

PitchBook analysts expect fundraising to slow down in the coming months. But for now, at least, major new vehicles are still in the works. New Airbnb backer Silver Lake is seeking between $16 billion and $18 billion for its latest tech fund, according to Reuters. Index Ventures has raised $1.2 billion for a new growth fund and $800 million for early-stage deals. And China's Qiming Venture Partners closed its latest flagship fund this week on $1.1 billion. 

6. Timely funds

Other funds closed this week seem particularly suited to our current moment. Deerfield Management raised $840 million for its new healthcare fund, the latest sign of increasing VC interest in life sciences. And Silverfern Group held a first close on $110 million for its latest opportunities fund, a type of vehicle that typically targets distressed assets and other unexpected chances for profit. 

7. An IPO emerges

Keros Therapeutics navigated Wall Street's troubled waters to conduct a successful IPO, pricing its shares at the top of their range and closing its first day of trading up another 25%. It's another sign that, in certain sectors, deals are still getting done. Two other examples from this week: Podium, which raised $125 million for its online customer-messaging platform, and BigBasket, an online grocery startup from India that brought in a reported $60 million in new funding. 

8. Data deals

Cohesity was another startup to secure major backing this week, hauling in $250 million at a $2.5 billion valuation to continue building out its data-storage services. The data industry could be transformed entirely if a different startup, PsiQuantum, achieves its ultimate aim of building a high-powered quantum computer; it announced $150 million in new funding this week from an investor list that includes Microsoft's M12 venture arm.

9. Astronomical acquisitions

Koch Industries completed its full takeover of enterprise software giant Infor this week, buying out Golden Gate Capital's remaining stake at an astronomical valuation that earlier reports pegged at $13 billion. It was also a notable week for one of astronomy's most famous names: The VC backers of Galileo Financial Technologies agreed to sell the company to SoFi for $1.2 billion, continuing a string of huge fintech mergers in 2020 that also includes Visa's planned $5.3 billion purchase of Plaid and Intuit's anticipated $7.1 billion takeover of Credit Karma. 

*Correction: This post has been updated to reflect that Sentinel Capital Partners is not a current backer of TGI Friday's; the firm fully exited its investment in 2019.

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