Why start-ups could face tough times ahead

In a year when much of the tech industry has pulled back on spending, start-ups have been hit particularly hard.

During the pandemic boom, investors were happy to bankroll promising young companies’ growth at any cost. Now, with new funding rounds all but evaporated, cuts are the order of the day.

More than 250,000 workers globally were let go from tech companies of all sizes this year, according to job tracker Layoffs.fyi.

While that includes big reductions at giants like Meta Platforms and Google, thousands came from smaller, closely held companies facing their first reckoning with a slowdown.

More than 500 start-ups closed their doors in 2023, according to equity management firm Carta – and many of those that endured are laying off workers and looking for alternative sources of cash.

Serve Automation’s Stellar Pizza, which uses robotics technology to make pizza, is one such business. The company cut half its workforce this year and announced a crowdfunding campaign to try to raise $1.24 million, which it said would allow it to operate for five more months.

“It’s a weird time in the venture world,” co-founder Benson Tsai said in an email. “I’m fighting the good fight to keep the business alive.”

The tone in most of the industry has changed from the boundless optimism of the latest tech boom. When the last round of layoffs struck in 2020, start-up employees, especially engineers, were nonchalant, knowing they would quickly find another job.

Today the industry has become less hospitable. “Salespeople and recruiters are leaving tech entirely” to get new positions, said Roger Lee, founder of Layoffs.fyi.

“Even engineers are compromising – accepting roles with less stability, a tough work environment, or lower pay and benefits.”

Across tech companies of all sizes, 1,150 firms have cut 256,499 employees, according to Layoffs.fyi. That follows 1,064 companies cutting 164,969 employees last year.

Because job losses tend to be concentrated in December and January, as companies plan their budgets for the new year, the worst could still be on the horizon.