How are startups in Europe preparing for the technology downturn?
The majority of startups are making spending cuts in preparation for the tech downturn, but most aren’t pressing the panic button just yet, according to respondents to a recent readers’ survey of how tech companies are reacting to market uncertainty.
Ninety-four founders and startup operators share their ideas and experiences with us, from a range of European tech company sizes, sectors and countries. Word of the day: Caution.
72% said their company has taken steps to increase its runway and 83% believe it will be difficult to raise money in the near future. 61% have cut or frozen hiring plans and 52% feel less secure in their job. But only 22% of the startups surveyed have laid off employees so far, and those who are hiring expect that there will be an abundance of top tech talent now available.
We also asked how conversations with investors are changing and what steps startups are taking to make their money even further.
This is what our sifted readers told us.
The employment landscape for startups during the technology downturn
Two-thirds of respondents to Sifted said their startup has returned or completely frozen hiring plans, in line with recent reports from the jobs platform. outta Employment at tech companies has fallen 20% in the past three months.
as such Technology stocks crash And VCs become increasingly stingy With their money, a number of readers said they are only hiring for essential roles while the focus shifts from growth to efficiency.
“We no longer negotiate salaries.”
According to one of the founders, course volumes have halved in the past few months, and “this lower fundraising capacity means we need to reduce hiring.”
Another said their startup is no longer negotiating salaries, noting that balance of power In the labor market turns from a candidate to an employer. Just months ago, in a Reader scan On the hiring scene, founders and startup operators told Sifted they were offering higher salaries and better perks as competition intensified to secure the best tech workers.
“Some of our job offers have been rejected because candidates are afraid to make a move.”
But it’s not just about employers. The uncertainty in the tech landscape is also making some candidates more reluctant to accept roles, and one participant who works in the talent department at his startup said he has candidates turning down job offers because they are “afraid to make a move”.
Technology startup layoffs
Other startup founders and operators told Sifted that they are actively looking to cut their salaries in anticipation of the technology downturn. They are not the only ones – there are many well-known European tech companies layoffs They are looking to shore up financial resources in the face of a looming economic downturn.
While Sifted readers have reported that layoffs are not currently widespread, about a third believe that the startups they work for will lay off employees in response to uncertainty in the tech landscape.
For this reason, startup workers are more concerned about their job security, and 52% of survey respondents told Sifted that they feel either a little or a lot less secure in the current climate.
We also asked Sifted readers whose startups have laid off employees which departments were affected. While the sample size is small, the data still paints an interesting picture of the roles European tech companies are expanding.
Sales and marketing departments have seen the most layoffs, and a number of survey respondents have told Sifted that these roles are the ones they stopped hiring in as well.
The talent and hiring teams have also taken a hit, unsurprisingly — despite heavy demand at the end of last year. Talent jobs also saw the highest number of layoffs among employees in Klarna, According to a spreadsheet shared by the company.
Do startups have a chance to hire during the technology downturn?
But not everyone is backing away from hiring or laying off staff, and 39% of respondents told Sifted they are continuing to hire as planned or actually ramping up efforts to hire technical workers.
“Economic uncertainty is the best time to attract the best talent in the market.”
A number of them said they are tapping into the talent pool looking for new jobs, after layoffs at some of Europe’s biggest tech companies.
“It’s hiring time,” said one of the founders. “A lot of hard-to-get talent is becoming available. Economic uncertainty is the best time to attract the best talent in the market.”
Another agreed, saying that they “believe that there will be tremendous opportunities to acquire the best talent from competitors who fail”. One respondent told Sifted that with a lot of talent entering the market, their startup is already considering accelerated growth plans.
make more money
72% of Sifted’s readers told us their startup is already taking steps to increase its runway, with the biggest reductions in hiring and marketing spending. Among those whose startups have not yet made cuts, half thought they would in the near future.
For many, this means a slowdown in deflation.
“We plan to sacrifice some growth in order to be more efficient,” said one of the founders — but this could have an indirect negative impact on the business in general, they added. “I would expect this to mean that we won’t hit our sales targets – not spending on marketing means fewer leads, which means fewer sales. This will lead to lower commissions, and the best salespeople will leave.”
External consultants have also been laid off by many as startups look to create as many jobs within the company as possible, and some respondents also reported reducing office space to cut costs.
Raising money for startups during the technology downturn
83% of our cited readers told us they thought it would be difficult to raise money in the near future, and several said they were considering it. Revenue based financing Instead of the traditional VC.
“We have lowered our expectations for the amount of funding and the valuation.”
Eighteen participants told Sifted that their startups are currently raising a round, with the majority reporting that investors are becoming more cautious and increasing their due diligence. Others said the cost of capital had risen dramatically.
“We have not changed our position, but we have lowered our expectations regarding the amount and valuation of the funding,” said one of the founders.
The tight scrutiny of investments has been positive for companies with “good fundamentals,” according to one of the founders, because it allows them to stay above the “FOMO hype.”
Seventeen selected readers said they plan to collect donations in the near future. A number of them have raised concerns about how much equity they will be required to give up and are expected to have to focus more on how the business makes money when promoting.
But one of the founders was confident that the market could recover quickly. “For now, the situation is very uncertain, but it will change in the fall,” they said.
“I’m nervous and feel like I’m injured […] Previous milestones changed overnight.”
pressure from investors
41% of survey respondents told Sifted that they are under more pressure from investors to reach profitability, which has led some founders to feel less safe.
One said, “I’m nervous and feel like I’m having a stroke.” “Previous milestones have changed overnight, and there is no acknowledgment of reaching previously agreed milestones.”
Another told Sifted that although their startup has a “very close relationship with all of the company’s active shareholders, the goals of going to market and deadlines are constantly being moved around, which creates friction.”
However, others said the increased focus on profit was “understandable” and was “positive, providing clarity to the leadership”.
Are founders and startup operators involved?
While there is an expectation that things will get more complicated before they get better for most startups, the panic has yet to start.
But founders with a runway are less concerned.
“Even with the big cuts, I’m concerned there isn’t enough runway to weather the storm,” said one founder who has six to twelve months of cash in the bank.
Others believe whether or not the company can raise its next run will be a success. “If we could raise our seed, we would be fine in this downturn,” one respondent said. “If we can’t – everything will be over very quickly.”
However, some founders and startup operators are less concerned and see the market has stabilized after a whirlwind of two years of ballooning valuations and shotgun investments.
“The current economic uncertainty is exaggerated,” said one of the founders. “It’s hard for lagging companies with inflated valuations, but most of the fear we’re seeing in the market comes from venture capital funds that invested in 2020-2021. [because they were worried about missing out on the best deals]. “
They added, “Very seasoned investors and companies are going on with business as usual, in terms of diligent investing and lean building.”
Another said: “The economy isn’t bad, it’s getting back to normal.” “The past few years have spoiled the founders.”
Kay Nicole Schwartz is a reporter for Sifted. It covers reports on health technology and society, and tweets from Tweet embed