Tech companies cut thousands of jobs as interest rates and recession risks rise

Paul Brown was working for a tech startup in Sydney, supplying software to police and other emergency services – until last week.

The 65-year-old computer scientist was surprised to learn he had been made redundant after just 19 months on the job.

But he is not alone. Dozens of his colleagues were also made redundant, as the company suffered a series of murderous cost cuts.

This trend is happening around the world as the Reserve Bank of Australia, the US Federal Reserve and other central banks embark on an aggressive rate hike cycle, making it more costly for high-growth tech companies to borrow money to finance their rapid expansion and hiring.

“There has been a series of layoffs in fintech, startups and pre-IPO [initial public offering] businesses,” said Brown, who has worked as an enterprise architect and led technology companies in previous roles.

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Job losses are accelerating in the tech sector as interest rates rise.(David Chau)

“So there was a movement to reduce the [cash] Burn rate and preserve capital. »

Over the past few months, more than 1,000 jobs have been cut at more established international companies, such as Netflix, Twitter and instant buy company Klarna.

One of the largest cryptocurrency exchanges in the world, Coinbase, has said that it is lay off 1,100 workers, or 18% of its staffas its CEO warned of an economic recession.

Peloton cut 2,800 jobs and replaced its CEO in February as the company misjudged the staying power of the home exercise trend.

In Australia, several startups including Voly (grocery delivery), Brighte (buy now pay later), Envato (online marketplace), HealthMatch (clinical trials) and Zepto (payment platform) are said to have made significant job cuts this year.

Meanwhile, digital-only bank Volt is closing its doors, after failing to secure additional capital to fund its expansion, forcing its 140 staff to find new work elsewhere.

Solar job losses

Solar technology company, 5B, is another Australian company where job losses have recently taken place. The company was forced to cut its workforce by 25% in June, in order to limit its skyrocketing costs.

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5B co-founder Chris McGrath has hired nearly 200 people during the pandemic.(ABC News)

Chris McGrath, co-founder and CEO of 5B, said it was a “very difficult decision” to make, but argued the job cuts were necessary to keep the company on “a more sustainable footing”.

At this time, 5B has raised $30 million from investors, which will instead be used to improve its product and supply chain. Its main innovation is a metal device (an “array”), making it possible to install solar panels on roofs more quickly.

Some of its prominent investors include former Prime Minister Malcolm Turnbull, wealthy businessman Simon Holmes à Court (who helped fund the Teal independents in the May federal election) and US power company AES .

Since 2020, Mr McGrath’s workforce has grown rapidly from 30 to more than 200 employees (before a quarter of those jobs were cut).

The past two years have been a golden opportunity for companies to borrow money at rock-bottom rates to finance their expansion, as governments pump billions of stimulus dollars into their pandemic-ravaged economies.

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The technology sector is experiencing strong growth and a high demand for skills.(Catherine Robinson)

But the flow of cheap money has now stopped.

Governments and central banks are withdrawing emergency stimulus to contain a burst of inflation as supply chain lockdowns and a shortage of goods (made worse by war in Ukraine) have driven businesses and consumers to experience their biggest price increases in decades.

Growing too fast before a “crypto winter”

The price of bitcoin and other cryptocurrencies has fallen in this higher interest rate environment and has increased talk of whether major economies, particularly the US and Europe, will fall. in recession.

Since hitting an all-time high in November, the crypto market has lost around 70% of its value, in what many have dubbed a “crypto winter.”

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Holger Arians says his cryptocurrency business has grown too quickly.(ABC News: Simon Tucci)

In this difficult climate, Holger Arians, CEO of the crypto company Banxa, had no choice but to lay off 70 of its employees (or 30% of its workforce).

“It was a very difficult decision that we had to make, unfortunately,” he said.

“In fact, our business has grown 100 times in sales transaction volumes over the past three years.”

It also opened offices in the United States and the Netherlands.

“We’ve also become a much more global company, now that we’re publicly listed in Canada.”

Banxa’s shares on the Toronto Stock Exchange peaked at C$7.50 in March last year. They have since dropped to just CA$1.

“We didn’t pursue a profitability strategy because we wanted to grow with the market and add as many partners as possible. We succeeded.

“We aim to be profitable in the short term.”

“Disastrous” for startups

Nascent startups also have a harder time attracting funding from private investors.

“The pandemic has been pretty disastrous for startup support in Australia outside of academic settings,” said Murray Hurps, director of entrepreneurship at the University of Technology Sydney.

“It’s absolutely something that has changed in Australia, it’s the early stage venture capital landscape.

“In 2015, the average was 1.5 years before their first investment according to CrunchBase data, and it’s now 3.2 years before their first investment.

“I see that myself the number of [startup] accelerators and incubators that have stopped working

Despite tougher economic conditions ahead, Hurps feels optimistic about the 492 startups his university nurtures.

“I think when people talk about layoffs, they’re obviously talking about big, very established, fast-growing companies that have grown too quickly.

“You also have to be careful of the small new companies that have been created, which may then be able to hire these people who are leaving highly skilled jobs.”

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Murray Hurps helps UTS students create their startups.(ABC News)

Newly unemployed Mr Brown is also optimistic about the future.

He has already received several calls from former employers to return to work for them.

“I really want to end on a high note and do something I’m passionate about, and not just take on ‘another job,'” he said.

“My motivation is my children, who are in their early twenties. A lot of me is working to help them get their first home, because it’s become very difficult in these urban markets.”

“So I want to work for at least the next five years or so.”

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