Focus: Startups spring from ashes of Big Tech purge
03/01/2023 06:00
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Mass tech layoffs spawn new wave of startups
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Early-stage VC funding at around record levels
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Echoes of dotcom crash that fueled Facebook, others
By Supantha Mukherjee, Martin Coulter and Krystal Hu
Jan 3 (Reuters) - Nic Szerman lost his job at Meta
Platforms META.O in November, just two months after joining
full-time, falling victim to a sweeping 13% reduction of its
workforce as the advertising market cratered.
Days later he was back working, seeking investment for his
own company Nulink, a blockchain-based payment company, and sent
pitches to startup accelerator Y Combinator and Andreessen
Horowitz’s cryptocurrency fund.
"As counterintuitive as it may sound, this layoff left me in
a really good position," the 24-year-old said. "Because I don't
have to pay back the sign-on bonus, I get four months of pay,
and now I have time to focus on my own project."
Szerman is part of a wave of would-be entrepreneurs who are
emerging from the ashes of the mass job losses seen in Silicon
Valley in the second half of 2022, according to venture
capitalists.
U.S. tech giants including Meta, Microsoft MSFT.O , Twitter
and Snap SNAP.N have purged more than 150,000 staff, according
to Layoff.fyi, which tracks technology job losses.
While overall venture capital (VC) financing fell 33%
globally to about $483 billion in 2022, early-stage funding was
robust, with $37.4 billion raised in so-called angel or seed
rounds, in line with the record level seen in 2021, according to
data from research firm PitchBook.
Day One Ventures, an early stage venture fund in San
Francisco, launched a new initiative in November to fund
startups founded by people who had been laid off from their tech
jobs, touting the slogan "Funded, not Fired".
The program aims to cut 20 checks for $100,000 by the end of
2022. Day One said it had received over 1,000 applications,
most of them from people who were cut loose by Meta, Stripe and
Twitter.
"We're investing $2 million in 20 companies - if we just
find one unicorn it almost returns the fund, which I think is a
really unique opportunity for us as fund managers," said Masha
Bucher, co-founder at Day One Ventures.
"Looking at the last economic cycle, companies like Stripe,
Airbnb, Dropbox have been created in crisis."
HOT: GAMING AND AI
Also in November, multi-stage fund Index Ventures, which has
bankrolled Facebook, Etsy and Skype, launched its second Origins
fund, which will invest $300 million in early-stage startups.
Silicon Valley investor U.S. Venture Partners and Austrian
VC firm Speedinvest have meanwhile earmarked a similar amount
for newly founded companies.
Investors highlighted gaming and artificial intelligence
among hot areas of interest.
"With advances in game design, new innovations like cloud
gaming, and the emergence of social networking in this sphere,
gaming has really transcended into mainstream culture," said
Sofia Dolfe, partner at Index Ventures.
"In every period of economic uncertainty, there is
opportunity - to reset, re-prioritize and re-focus energy and
resources."
DOTCOM BUBBLE 2.0
Szerman said his project was rejected by Y Combinator, while
he hasn't heard back from Andreessen Horowitz yet, though he
added that other early-stage venture capitalists had expressed
interest.
"I told the investors we'll chat in two or three months," he
added. "I'll focus on scaling the system now."
Some investors compared the 2022 downturn to the dotcom
crash of the early 2000s, when dozens of overvalued startups
went bust, flooding the market with talent and helping to spark
a wave of new companies such as Facebook and YouTube.
"Many great companies have been created in relatively dark
times," said Harry Nelis, managing partner at investment firm
Accel, who sees a new generation of risk takers emerge among the
swathe of people left unemployed.
Some industry players say former Big Tech employees are
uniquely placed to start their own companies, having seen
first-hand how some of the biggest firms in the world operate,
and enjoying ongoing access to their network of highly skilled
colleagues.
One former Googler has sought to help others like him
looking for life after technology giants. In 2015, Christopher
Fong, who spent almost a decade working for the tech titan in
California, launched Xoogler, a project designed to help former
employees hoping to start their own companies. Since then, the
group's membership has since swelled to more than 11,000.
Fong told Reuters that experience in Big Tech firm gave
founders a "strong brand that can be leveraged to meet
investors, potential customers, and recruit team members".
(Reporting by Martin Coulter in London, Supantha Mukherjee in
Stockholm and Krystal Hu in New York; Editing by Pravin Char)
((Martin.Coulter@thomsonreuters.com; Follow me on Twitter
@Martinjbcoulter;))