Technology startups have been laying off tens of thousands of workers to cope with the economic fallout of the coronavirus pandemic, potentially blunting a key innovation pipeline for the enterprise information-technology market, according to industry analysts.
“Startups are a great source of innovation in the IT industry, but are now especially cash constrained,” said Max Azaham, a senior research director at research and consulting firm Gartner Inc.
Mr. Azaham said the coronavirus has made startup investors far more risk averse, resulting in a sharp downturn in investment capital for IT companies looking to raise less than $100 million.
As of last week, nearly 70,000 tech-startup employees world-wide had lost jobs since March, led by ventures in the transportation, financial and travel sectors, according to a report by U.K.-based brokerage BuyShares.co.uk.
Startups in the San Francisco region, including Silicon Valley, have shed more than 25,500 jobs, including layoffs at high-profile companies such as Uber Technologies Inc., Groupon Inc. and Airbnb Inc., the report said.
Uber in May announced more than 6,500 layoffs, cutting roughly a quarter of its workforce. A month earlier, Lyft Inc. said it would cut about 17% of its workforce, furlough workers and slash pay in cost-cutting efforts to cope with lost sales during the coronavirus pandemic.
Startups developing artificial intelligence and other emerging digital tools fall under the category of tech-sector employers, which have cut jobs for four consecutive months, said Tim Herbert, executive vice president for research and market intelligence at IT industry trade group CompTIA.
The cuts included a record 112,000 layoffs in April, as tech companies scrambled to slash costs, according to CompTIA’s analysis of federal employment data. By contrast, employers outside the tech sector have picked up the pace of IT hiring in recent months.
Startups this year have been cutting costs to make up for a loss of outside funding.
Global private-market funding for startups dropped to $67 billion in the first quarter, down 22% from the same period a year earlier, according to CB Insights, a market-intelligence company.
Making matters worse, most venture-backed startups in the U.S. are largely unable to tap federal emergency funds under the Payroll Protection Program due to a rule that counts their venture-capital backers as affiliated businesses.
According to a May study by the Washington Technology Business Association, an industry trade group, fewer than 40% of 140 tech startups in the greater Seattle metropolitan area had received funding under the program, while many relied on unemployment insurance to pay bills. Roughly 25% had furloughed or laid off workers, the group said.
Layoffs at tech startups could spell trouble for companies across the economy seeking innovative digital tools to weather the coronavirus crisis and compete in a post-Covid market.
Startups and other small tech firms have for years been a major source of emerging technology and skilled workers for larger companies, according to Jonathan Simnett, director of technology-advisory firm Hampleton Partners. Additionally, big corporations often consider startup acquisitions as a form of research and development for IT departments, he said.
“The Covid-19 crisis has accelerated the need for innovation across many parts of the economy,” Mr. Simnett said, citing areas such as collaboration and remote working, e-commerce and IT services.
Write to Angus Loten at [email protected]
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