- According to PitchBook data, a handful of top-tier Silicon Valley venture-capital firms have startups that are bearing the brunt of the current financial crisis.
- Many startups are experiencing the first, and likely the worst, financial crisis in a generation, and about 60 companies have had to cut costs and lay off employees to stay afloat.
- NEA and Founders Fund each have 14 companies that have conducted sweeping layoffs or shuttered entirely.
- No stage was spared, as early-stage investors and later-stage firms like IVP had all backed companies that are now struggling.
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After years of founder-friendly investing, the power is back with the venture capitalists, and startup employees have so far borne the brunt of that power shift.
In a tight labor market and cash-rich startup scene, employees were able to enjoy extravagant perks and substantial equity packages on their employers’ dime. But the coronavirus-led economic downturn has forced founders to look long and hard at their balance sheets and start making deep cuts in an effort to survive.
All in, Business Insider has counted nearly 60 startups that have conducted layoffs in efforts to save their businesses. At least three venture-backed companies have shut down entirely when cuts weren’t enough.
These startups cover almost every industry, from logistics and enterprise software to consumer retail and on-demand services. Travel, hospitality, and vacation rentals were by far the hardest hit, but other growth-stage companies were not immune to changing customer behaviors and the universal desire to cut costs. It is almost easier to list the industries, companies, and stages that haven’t been affected.
Investors themselves are also scaling back, and several venture capitalists have told Business Insider they are delaying new investments in favor of using current funds to help their portfolios make it out of a recession in one piece. According to PitchBook data, at least 26 venture-capital firms have portfolio companies that have instituted cost-saving layoffs.
Similar to the companies in which the layoffs are occurring, the firms vary just as widely. Some of Texas’ biggest funders, like Capital Factory and Silverton Partners, have benefited from the recent boom of Austin’s startup scene but have seen cuts of their own.
IVP, which specializes in late-stage investing, has 11 portfolio companies that have conducted layoffs, but early-stage firms have shouldered the majority of the brunt as younger companies try to reel in spending.
Founders Fund and NEA each have 14 companies in their respective portfolios that have conducted layoffs, the most of any venture-capital firm in the US.
Blue-chip firms like Andreessen Horowitz, which recently started a growth-stage fund in addition to its more traditional early-stage investing practice, haven’t been spared either, even though their portfolios tend to be much larger than industry-specific or stage-specific firms. Andreessen has 10 layoff-stricken companies, the most in its peer group. Accel and Kleiner Perkins both have eight in their portfolios, and Sequoia has seven.
Many firms have gone through similar economic downturns in the past and used that experience to counsel founders through the current uncertainty, so it is not surprising that some founders have ultimately taken their advice. However, it’s not entirely altruistic on the firms’ part, as poor portfolio performance could hinder their own fundraising efforts down the line. Venture-capital firms are trying to weather the storm like any other financial institution and battening down the hatches when the storm worsens.
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