150,000 Laid-Off Tech Workers Fuel Massive Wave Of New Startups – And They're Actually Making More
This year did not start off great for many tech workers. After tens of thousands of layoffs in 2022, tech companies continued to shed workers in round after round of layoffs. Technology companies from Microsoft Corp. to Meta Platforms Inc. announced thousands of layoffs at the beginning of the year.
A report from placement services firm Challenger, Gray & Christmas Inc. stated the technology industry led other sectors for the number of jobs cut in 2022. It found more than 97,000 tech workers received pink slips in the year, a 649% increase from 2021.
In 2023, tech layoffs continue throughout various firms:
Microsoft announced cuts to 10,000 workers, representing approximately 5% of the company’s workforce.
Amazon.com Inc. announced 18,000 layoffs across many of the company’s business areas, including Amazon Web Services, its healthcare businesses, the robotics unit and many others.
Zoom Video Communications Inc. presented plans to cut 15% of its workforce in early February.
PayPal Inc. alerted investors it was planning to cut 2,000 full-time employee jobs.
Google’s parent company Alphabet Inc. announced 12,000 job cuts in January.
GitHub Inc. announced plans to cut 10% of its workforce before the end of the fiscal year.
Tech hiring took off during the pandemic as the societal shift toward digital services meant technology firms needed to innovate and meet demand. Some of these firms overhired during this period, as their management overestimated growth targets. Growth slowed as the pandemic eased, interest rates rose, and inflation cut into personal spending and increased many business expenses. Tech companies also need capital to invest in artificial intelligence (AI) or other innovations, and reducing staffing is one way to generate cash.
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Private Tech Company Layoffs And Stock Sales
Privately held firms are also laying off employees in moves similar to publicly traded firms like Amazon and Microsoft. Fintech firm Stripe Inc. laid off 14% of its workforce in late 2022. The privately held firm also saw a steep decline in its internal market value in 2021 and 2022.
Other private tech firms are also experiencing steep drops in valuations. European “buy now, pay later” firm Klarna Bank AB noted in 2022 that its valuation was $6.7 billion after a recent investment, an 85% drop from its valuation the previous year.
Amid these private company layoffs are reports of current and recently laid off employees selling private shares, as they need capital in the face of falling valuations. Another driver for private share selling is the low number of initial public offerings (IPOs), which reached the lowest point in 20 years in 2022. The lack of potential windfalls from an IPO pushed more employees to sell some of their private shares, which then drops their companies’ valuations. Lower valuations impact a company’s ability to raise additional capital and strain the available venture capital funds.
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Laid-Off Tech Workers Driving Startup Creation
One of many impacts of the job cuts from 2022 that continue into 2023 is it adds many engineers, coders, business development workers and others back into the job market. Many of these workers will find employment with other tech firms, but others will take the opportunity to launch their own startups.
A survey of 1,000 laid-off tech workers conducted by Clarify Capital LLC found 63% of the respondents started their own company after their layoff. And tech workers reported they made more money after starting a company.
Accelerator Y Combinator reported a jump in startup applications of 20% in 2022 and noted the number of applications filed in January 2023 was five times higher than the previous year. An increase in startups creates new jobs and presents an investment opportunity for venture capitalists and individual investors to capitalize on exciting new startup opportunities.
For Investors: Thanks to changes in federal law, it’s possible for investors to capitalize on this new wave of startups. Now, anyone can invest in startups. For example, GenesisAI is a startup creating an AI marketplace that helps any business integrate artificial intelligence features into their business.
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