When It Comes To Fintech Layoffs, Don't Just Blame COVID
Hi all, Julie here again.
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On Friday, I sat down with Jackie Reses from Square for a 45 minute conversation that covered everything from her time in private equity and at Yahoo, to building systems for helping with PPP loans in a matter of days and weeks rather than months, to what women and minorities can do to get ahead in fintech (I had no idea that Square Capital was a mostly female team, which is pretty wild in the world of finance). Oh, and of course about how their bank charter approval will change Square Capital in the future. The interview is out Tuesday and I can’t wait for you guys to listen!
This week, I want to talk about layoffs. Such a cheerful topic, I know, but pretty on point for the times that we are in. Over the past few months and weeks, there have been a slew of job cuts, as well as hiring freezes across fintech. Every single one of them (for fintech as well as other sectors, both public and private) has been blamed on COVID, but I’ve started asking myself how many of them really were due to the pandemic and how many were going to have to take place anyways. Certain sectors, like lending or real estate, are obviously a bit more tied to COVID and the issues it’s caused. But it feels like COVID has also served as a rude awakening for some of these startups that have been hiring like crazy as venture funding continued to flow in and growth was the ultimate priority.
Some big name startups have had to let people go, including Brex, Carta, Opendoor, SoFi, Monzo and Revolut. And many of these companies had little problems raising capital in the past, with VCs ambitious on growth prospects for both them and their respective sectors. As priorities shifted to profits and sustainability rather than growth, right around the time that COVID was starting, it created a perfect storm for layoffs sooner rather than later. With growth slowing down and priorities shifting, it’s become clear that companies had over-hired across a number of business lines. Everything from operations to engineering to marketing and sales likely had a higher headcount than needed.
Others have had to either instate hiring freezes or cut salaries, such as Stripe and Credit Karma. Most of these companies aren’t going out of business (doubt anyone reading this thinks the last two in particular are just going to die any time soon), but it does imply that the vast majority of our space had gotten ahead of itself and wasn’t as prepared for a recession as we’d like to think.
Going into this, my assumption was that 25-50% of the layoffs that have been blamed on Covid were going to have to take place anyways, and the rest were purely pandemic related. But, as I’ve said before, I’m only as smart as the people that I talk to. So, I tweeted about this and texted a few of my friends to test my thesis and see what they thought. Turns out, I was actually being a bit generous. The average of the answers that I received was that 75% of the layoffs were going to have to happen anyways. Ouch. And this is coming folks in the know—VCs, as well as executives as high flying startups (including a CFO).
There are a few takeaways from this, both good and bad. The bad: these jobs aren’t likely to come back anytime soon. The good: I’d anticipate companies in our universe to be stronger coming out of this than they were going into it. They’ll be more efficient, they’ll have better priorities that will put them on a more sustainable long term path, and it could even create new opportunities for them that wouldn’t have existed otherwise. There could be more mergers that make one strong company rather than two decent companies. There’s a potentially larger addressable market now that even more individuals are using computers, phones and apps for their finances than before the crisis. And for the first time ever, the startups in our sector are on the same playing field as the big guys. Neobanks were doling out stimulus checks just like JPMorgan, and Square was participating in a government sponsored lending program just like other small business lenders. Let that sink in for a second. I don’t want this to take away from the terrible facts that people lost their jobs, but I do want us to also see the light ahead at the end of this. Hopefully this means there won’t be more layoffs, hopefully this means folks got laid off at a time when unemployment benefits were much higher than they usually are, and hopefully this means that there won’t need to be layoffs in the future since these businesses will be stronger than ever.