“It’s been a tough day,” was the subject of an email to Shelly Little, the owner of online used car retailer Carvana.
The note indicated that Little was among nearly 2,500 employees fired from the U.S. company this week, with another employee describing the sentiment as “mass hysteria.” Shares in the company known for its towering multi-storey car “vending machines” have fallen 87% since the start of the year.
“The consequence I can think of is – wow,” Little wrote on LinkedIn, telling her friends and colleagues that she was one of the 12 percent of people Carvana was brought through the door.
Her experience reflects a sudden calm in the U.S. tech sector, sparked by a deep and widespread equity sell-off amid investor concerns about rising interest rates and slowing economic growth.
Private companies are forced to recalibrate their expectations of valuations, access to funding and willingness to take risks, and these venture capitalists may no longer be cautious.
“I think it’s certainly humbling for a lot of people who think things are never going to go the other way, or aren’t planning for a rainy day, or are a bit bombastic,” said Semil Shah, founder and general partner . Haystack, a San Francisco-based venture capital firm.
“If you’re actually counting your chickens before they hatch, or you’re thinking about all the wealth you’re going to get, it’s going to take a while.”
Carvana is one of the hardest hit companies in the public markets, but it’s by no means alone. DoorDash, the leader in the U.S. restaurant delivery market, is down 60% so far this year. Affirm, one of the largest formerly highly sought after pay-as-you-go sector, plunged 85%. Shares of e-commerce operator Shopify, often cited as the most serious threat to Amazon’s e-commerce dominance, fell 77%.
Even some of the biggest tech companies with the strongest growth over the past decade have suffered sharp declines. Apple, Amazon, Alphabet and Meta lost $210 million in market value.In the case of Apple, its $600 billion drop was enough to see it Deposed this week Rated by Saudi Aramco as the world’s most valuable listed company.
Jefferies analyst Brent Thill said an energy giant should take over its mantle, a sign that investor confidence has shifted from companies with strong revenue growth but shaky bottom lines to those with more reliable bets.
“It’s a full, complete technical vomit, a full-fledged pop button,” he said. “In less than a year, all high-growth software companies are now evil and unprofitable. I see this as a massive shift from tech to defensive industries, energy and utilities.”
Tech companies responded by tackling the fundamentals—cutting costs, reducing cash burn and focusing on fundamentals.
“It’s kind of crazy that I’ve been talking about free cash flow since I took my first accounting class,” said one person at a major publicly traded technology company.
Likewise, at Uber, whose shares are down 49% this year, CEO Dara Khosrowshahi told employees in a memo over the weekend: “The goals have changed. Now it’s about free cash flow.”
“In uncertain times, investors seek safety,” he added in the report, which was first reported by CNBC and verified by the Financial Times. “They recognize that we are the size leader in our category, but they don’t know how much value it has. Lead Jerry Maguire, we need to show them the money.”
After drastically renaming and repositioning his company last year, Meta CEO Mark Zuckerberg’s lust for the metaverse has given way to a more muted enthusiasm for big-ticket investments.The social media company last month pledged to reduce spending forecast Billions of dollars have been added this year.
To achieve this, Meta has pulled the handbrake amid a massive increase in its workforce. According to an internal memo from Meta CFO David Wehner obtained by the Financial Times, the company hired more staff in the first quarter of this year than in all of 2021 — but that’s over.
“We need to revisit our priorities and make some tough decisions about the projects we pursue in the short and medium term to achieve the lower fee guidance we promised during earnings,” he wrote, adding: ” This will affect almost every team in the company.”
A note from another Meta executive said scheduled job interviews for prospective junior and mid-level engineering employees would be “sensitively cancelled”.
Twitter, possibly at acquisition edge Elon Musk said Thursday that it didn’t hit its own growth “intermediate milestones” so it “is scaling back non-labor costs to keep us accountable and efficient.”
Companies across the tech industry are closely watching headcount as a direct way to cut costs. Layoffs.fyi, a website that tracks layoffs at public and private tech start-ups, has seen a wave of layoffs since February, although levels are still well below the early stages of the coronavirus pandemic. Food delivery “ghost” kitchen startup Reef, celebrity shout-out platform Cameo and diet and health app Noom are all laying off staff.
How the tech sell-off is starting to affect the private sector, and the financing ecosystem that underpins it, is just beginning to emerge.
Companies that are closest to the public markets and looking to raise more capital are the first to experience headwinds, with “significantly different investor sentiment” compared to valuation highs in 2021, according to a report released this week by analytics group PitchBook.
Global venture capital funding fell 19% in the first quarter of 2022 from the previous quarter, the largest percentage drop since the third quarter of 2012, according to CB Insights. The number of public exits — whether through an IPO or a Spac merger — fell 45%.
Start-up funding has become increasingly difficult to obtain for companies without a solidly established business model, Haystack’s Shah said.
“People are still writing checks,” he said. “But if you raise half a million, five million, or 50 million, you have to fight for it — a lot more than you fought for it a year ago.”