Startups react to rising recession fears – InsuranceNewsNet

After years of what seemed like free growth, a central Ohio’s As the pressure to control costs increases due to a potential recession, young tech companies are realizing they need to behave like their more established peers.

In July, health technology company Olive cut 450 jobs, and last month Root cut 20%, or 137 jobs.

Mortgage lender Lower.com has launched a new Crewe Stadiummedia reports said it cut an unknown number of workers this summer and blamed rising interest rates.

Similarly, financial technology company Upstart has cut 140 employees to help process loan applications. columbusdesignated by the lender as its secondary headquarters.

With tech companies ranging from Facebook’s parent company Meta to Amazon to Twitter laying off tens of thousands of jobs this year, what companies are experiencing locally can be replicated elsewhere in the country. It is felt.

“We’re going through a cycle. We’ve been lucky. We haven’t been through this in a long time,” he said. Max BrickmanFounder and Managing Director Heartland Ventures, an Easton-based venture capital firm. “Now is not the time to panic”

Young companies typically lose money and need cash as they grow. Sometimes you have to double your headcount in a few months and then double it again in a year or so. He said it puts pressure on founders to use it efficiently.

“2021 has been like an open bar,” Brickman said of the funding available to young companies. “It’s kind of a hangover.”

“Interest rates, inflation, rising costs of everything, uncertainty, a slowing economy and employee compensation for highly competitive skilled workers have surged in recent years. Matt Armsteadhas founded several companies, invested in startups, and is a partner. columbusbase Horizon Two Lab, which helps keep the enterprise on track. “It’s the culmination of these things and the market expectations of these companies that are very well funded and very highly regarded. We have to reorganize these things. We’re just at a point where it shouldn’t be.”

Young company, tough decisions

The founders and CEOs of these companies say layoffs are the toughest jobs.

“We are prioritizing resources that support Root’s forward-looking strategy to further improve cash flow,” said Root CEO and co-founder Alex Tim “As a result, we have made the difficult decision to reduce our headcount by approximately 20%,” he said in a letter to shareholders as part of the company’s third-quarter earnings announcement last month.

“This is the most difficult decision I have had to make as CEO.” Sean Rainfounded Olive in 2012. .”

Armstead said the cuts reflect a balancing act by fledgling companies that must control costs to navigate the uncertain times ahead while expanding what’s working. It is said that there is.

“Our startup ecosystem is maturing. It’s a reality and it’s important to recognize and appreciate what’s going on,” he said. “We are on par with some of the more established startup scenes. silicon valley, boston (When) New YorkNo longer growing at any cost, the focus is on fundamentals and better aligned towards profitability. ”

Amid recession concerns, jobs are still plentiful, but…

Despite cuts, there are no signs of a slowdown in demand for workers Ohio – for now.

some technology companies Greater Columbus The region as a whole added 25,500 jobs in the past year, according to state employment data.

Statewide, there were 305,415 openings. October 13th, is the latest data available, according to state job site OhioMeansJobs.com. This is the most in the last four years of data, and he has increased by 28,767 job listings since the previous month’s reporting period.

Regional posts are on the rise again this year, with the latest report hitting new highs in several metropolitan areas in 2022. There were 69,433 job openings. columbus area, 52,840 Cincinnati area and 100,712 cleveland range.

Despite an ever-growing list of job postings, employers are indicating they are having trouble finding applicants for the positions they need. This also includes start-ups.

“It’s still hard to find people in every field, and startups are no exception,” Brickman said.

“In the labor market, there is a mismatch between the skills and backgrounds employers are looking for and the workers available,” said a senior economist at Nationwide. Ben Ayers Said.

Labor demand remains strong for now, but we expect demand to weaken in 2023. federal reserve It continues to raise interest rates to combat decades of high inflation, he said.

“All the major labor market data are forecasting a slowdown heading into 2023,” he said. “The current pace of job growth and employer demand is unsustainable, especially given the Fed’s sharp tightening cycle and signs of slowing demand across the economy.”

Nationwide forecasts a recession next year, but it doesn’t expect it to be as severe as the short but strong recession early in the pandemic or the brutal Great Recession of 2007-2009.

“There will be some pain, but it will be short-lived,” said Ayers, who said it resembled what is considered the more typical recession the U.S. economy has experienced in the past.

The unemployment rate could rise by 2-3 percentage points. we The interest rate in November was 3.7%. Ohio The interest rate in October was 4.2% (Ohio’s November unemployment reporting deadline December 16th) — rates will peak at the end of next year or early 2024, he said.

“The consensus is to slow down. The common concern is that the Fed will overreact.” Mark PartridgeC. William Swank, Chair of Local Urban Policy Ohio State University“They will push too hard and overreach.”

Beyond federal reserve Interest rate hikes, now so many uncertainties could affect the economy. Ukraine Or fuel prices soared early in the year, he said.

But he said an economic slowdown or recession would not change the long-term trajectory of the economy in the state’s metropolitan areas.

of Columbus Population and economic growth, for example, should continue to shine after coming out of the slowdown compared to other large cities in the state, as they have for decades, he said.

“What we have today is what we will have in the future,” he said.

Are Startup Valuations Too High?

Prior to going public two years ago, various reports put the root’s valuation at approximately $6 billion.

But once it went public, the stock price plummeted, reflecting a company that is now worth about $100 million Because you are trying to strengthen your financial situation.

Bricker said some of these young companies’ valuations may seem high, but that’s because they offer savings and value to other businesses and consumers.

Companies like Root are more public, Armstead said, so they’re more aware of the pressures and difficult decisions they have to make. Olive, who is still private, has made some of the same decisions, but it hasn’t been in the public eye.

“Both companies have investors and boards that drive cost control and a focus on profitability, much like Amazon and Meta, which are more established technology companies,” he said.

Even companies in the early stages of development must show signs that fundraising is on track if they want to raise next-stage funding, he said.

“We are in a new era here. With big dollars comes big expectations, market-shaping expectations,” said Armstead. “These late-stage startups columbus When Ohio Luckily, they have a large strategic investor backing them, but I think at some point all of this funding will come, and the time has come.