The tech startup space in the United States has been on a downward trend, according to new data coming in from across the pond.
The number of layoffs by tech startups increased eightfold in Q2 2022. Some 170 startups and tech-oriented companies laid off employees between April and July. In contrast, only 20 did so in the previous quarter, according to a Moneyzine data analysis. In contrast, only 20 did so in the previous quarter.
“In the face of rising inflation and a potential recession, many startups are finding that they need to reduce their workforce to stay afloat,” explains Moneyzine CEO Luke Eales. He adds, “Startups are particularly vulnerable to the current economic conditions because they often have high overhead costs and thin profit margins.”
Layoffs happening across various industries
While referring to Crunchbase News’ Tech Layoffs tracker, Moneyzine asserts that at least 35 tech companies cut their staff in May. But that figure would more than double in June to stand at 74 companies. Those job cuts affected startups in various industries, from food delivery to travel booking to fitness tracking.
Many attribute June’s uptick in layoffs to the month being the second quarter’s end.
Consequently, firms were rushing to ensure that their financial books were in good order. They also focused on straightening their priorities before Q3, and H2 2022 took off. That’s why the affected companies ramped up their layoffs toward June’s tail end.
Moreover, June was a turbulent time for public markets. The Fed further compounded that situation by instituting the largest interest rate hike in four decades. That heightened fears of a potential recession leading firms to take cost-cutting measures, including job cuts.
Freelancer skills and experience still in high demand
While the number of layoffs in the tech startup space is concerning, it is important to note that this is not indicative of the entire industry, according to the Moneysize report. There are still many successful startups out there, and the overall health of the tech sector remains strong.
Those focusing on consumer-oriented products and services continue to do well, thanks to solid demand from consumers and investors. But even they are starting to feel the pinch as investors become more selective about where they put their money.
Private equity firms, the investment funds that back tech startups, are also on a hiring spree for tech talent, among other skills, as previously reported. Some 31% of private equity firms confirmed they are either currently recruiting for data analytics, science and programming roles.
As data analysis becomes a crucial component of their investment modelling, private equity funds are also having to provide data reports to their investors, which requires in-house tech experience to set up, especially if bespoke platforms are involved.
Hiring trends in the UK
“There is a waning confidence among employers as they wait to see what happens in the potentially turbulent months ahead,” says Karen Watkins, an organisational coach, HR expert and founder of Rowan Consulting.
Watkins says a first negative quarter of GDP growth will invariably make many employers stop and think about their hiring.
“For employees, yes, it remains a buoyant market but the numbers are deceptive, the high job vacancies are due to a widening gap in some areas such as retail and health and social care as a result of the flood of candidates leaving these industries and trades.
“My concern is that business owners are trying to fix individual problems in recruitment with no clear view or path on the wider picture. Paying higher salaries is high-stakes stuff as we enter a period of extreme economic uncertainty. Doing so may cause companies serious problems later down the line if their revenues are hit,” says Watkins.
As long as skills in demand, freelance economy will be frothy
With so much change in the air, an increasing number of companies on both sides of the Atlantic are flexing their in-house teams with freelance talent, Fiverr has reported.
93% of a recent Deloitte and MIT Sloane Management survey’s participants consider external contributors (including freelancers) an integral part of their workforce. 91% say their organisation supports managers looking to hire external workers. And finding the perfect match has never been easier.
In the UK, the jobs market is still strong, despite a small dip in job vacancies. The ONS reported in August that the number of job vacancies in May to July 2022 was 1,274,400, a decrease of 19,800 from the previous quarter and the first quarterly fall since June to August 2020.
“We have not noticed any slowdown in the jobs market,” says Kieran Boyle, Managing Director of recruitment firm CKB Recruitment.
“Employers are still struggling to find experienced staff, and we do not envisage this changing anytime soon. Candidates are still in the driving seat, which is pushing up salaries and enabling them to have their pick of employers,” says Boyle.
Boyle says it is hard to know if increased salaries are linked to inflation or the candidate shortage in the UK, but it’s likely to be a mixture of the two.
“We also do not think unemployment will rise, as there are just so many vacancies available in the UK jobs market currently and candidates are still keen on flexible/hybrid working and we see no sign this will change,” he says.
The full report and statistics can be found here: Layoffs by US tech startups record an 8X jump in Q2 2022