A wave of layoffs and a recruitment freeze in the US technology sector has hit Canada hard, industry observers say. They warn that although there has already been a reduction in the number of jobs, we are facing even greater reductions.
“The message everyone is getting is, ‘Protect your capital.’ Undoubtedly, there will be many more layoffs, “said Jacques Bernier, managing partner of Teralys Capital’s Montreal fund-of-funds.
“It’s going to be a bloodbath,” said Vancouver billionaire investor and businessman Markus Frind, who owns most of the online furniture retailer Cymax Group Inc. and encourages several venture capital firms, all of which tell their companies to reconsider their spending plans. “It will be much worse than in 2008,” when the credit crunch triggered a recession.
Canadian banking challenger Wealthsimple Technologies Inc. froze recruitment. Thinkific Labs Inc., an online platform for course creators, and Legible Inc., an online e-book market, both listed on the Canadian stock exchanges, announced a significant staff reduction this spring. Montreal food delivery company Goodfood Market Corp. lost 2.8 percent of the more than 2,500 jobs.
Several other fast-growing Canadian technology companies they have quietly cut jobs this year to prepare for what could be a long-term downturn. They contain:
- Sensibill Inc. based in Toronto, which digitizes receipts for clients of financial institutions. It fired a quarter of its employees to focus on selling to large banks “and reduce the allocation of resources to parts of the business that were less profitable,” CEO Corey Gross said in an email. He added that his goal is to focus on increasing the company’s resilience to market downturns and more efficient use of its capital.
- Rewind Software Inc., an Ottawa company that backs up data for Shopify Inc. merchants. and received $ 65 million last year. It recently fired five of its six recruiters and a handful of others as it sharply reduced its recruitment targets for 2022 and postponed another round of funding. He now plans to raise money in 2024 or 2025, rather than 2023, as originally thought. “Who knows what it’s going to be like in a year, but we’re running this business to extend this increase for as long as possible, and we’ll even see if we can return to profitability,” said CEO Mike Potter. “It seems like a fairly long decline to which we’re going.”
- Get ResQ Ltd., a Toronto startup that provides a digital platform for restaurant repair and maintenance management. The company fired 15 people, about 10 percent of its employees, to save cash, “so we can focus and invest in a core business that continues to grow at a good pace,” CEO Kuljeev Singh said in an email. The company raised $ 39 million in venture capital in 2021, led by Tiger Global Management and Canvas Ventures. Slices will extend ResQ’s ability to finance operations from current cash sources for two to three years, Mr Singh said.
- Ottawa Hoppier Inc., a digital gift card provider that cut its staff to six on March 21, will ensure that its nascent business survives an uncertain funding environment. CEO Cassy Aite said the company generates annual revenues of around $ 1 million and is still looking to see if it has enough market interest in its offerings to expand. Early-stage startups such as Hoppier “will have to make more extreme changes in the business and reduce their burning more than other companies that are further away,” he said.
Those cuts are just a preview. Several Canadian venture capital investors have told The Globe and Mail that many companies in their portfolios are either considering layoffs – including a major “reduction in efficiency” – in the coming months, or have already begun.
“My companies are now talking about layoffs and not hiring new employees,” said Fraser Hall, managing partner at Vancouver’s Rhino Ventures. While many Rhino-backed companies, including Thinkific, were considering entering the stock market in early 2021, the prospect of a freeze on recruitment, job losses and cost reductions is now dominated by boardroom talks, Mr Hall added.
The layoffs are part of a sector-wide belt tightening that is more evident in the US as nonprofit technology companies, pushed by their investors, are trying to reduce their “burning” – the rate at which their cash reserves are shrinking – and prolong long they can pay for their operations from their existing funds. The shift comes after a lack of talent in the industry, which has resulted in soaring rewards for highly sought-after workers.
According to Layoffs.fyi, a global technology layoff, the second quarter was the largest three-month layoff period since the pandemic in early 2020, with 141 redundancies and 25,612 job losses on Friday. .
One of the last companies to announce the downgrade was San Francisco-based Sonder, a short-term rental provider led by Canadian CEO Francis Davidson, who laid off 21 percent of its corporate staff and 7 percent of its top line staff last week. Other US technology companies have introduced a recruitment freeze, including parent company Facebook Meta Platforms Inc., Salesforce, Inc. and Intel Corp.
Venture capital giant Sequoia Capital recently warned portfolio companies that this was a “critical moment” and that they must act quickly to reduce costs and save cash to overcome the uncertain period ahead.
“Investors have shifted to a much greater focus on profitability, or the path to profitability and unit economics,” said Janet Bannister, managing partner of Montreal-based Real Ventures.
Robert Antoniades, general partner of Toronto’s Information Venture Partners, said he told his companies to prepare for capital-free survival for two years.
The sector’s new austerity measures contrast sharply with the previous “growth at all costs” mentality driven by cheap capital, COVID-19 stimulus spending, and the accelerated transition to digital channels during the blockade. This led to a record acquisition of venture capital funds and a boom in primary public offerings.
Since then, rising inflation has led to a rapid rise in interest rates and supply chain problems have worsened as a result of the war in Ukraine, which has triggered a sell-off in technology stocks. According to the Nasdaq Emerging Cloud Index of Bessemer Venture Partners, the median valuation of cloud software shares is at a four-year low.
The market now wants young technology companies to become more efficient, said Michele Romanow Dragon’s Lair star and CEO of a Toronto e-commerce retailer, financier Clear Finance Technology Corp., known as Clearco.
“No one says, ‘Grow and spend all that money, and we’ll fund you forever and one day.’ That era is over. “
Clearco, which gained $ 315 million in 2021 and has nearly 500 employees, must sustain revenue growth or reduce costs, she said. The second course, she added, is “the last thing I want to do and I don’t have to do it right now. But I also have to be realistic about what the market will want. ”
Mr Bernier, whose leading provider of finance to Canadian venture capitalists, said the situation would not be as bad as it had been in the early 21st century after the dot-com bubble burst and devastated the sector. But it will be closer than the relatively mild impact of the recession in 2008-09, he said.
Consumers are beginning to move away from technology financing and buyouts or demand that they be revalued at lower prices, industry observers say – although many expect private equity fires to ignite a wave of buyouts of devalued public companies.
“Now we’re usually finding it harder and harder to raise capital,” said Chad Bayne, co-chairman of Osler, a Hoskin & Harcourt company that specializes in emerging and high-growth companies. “It was crazy last year. But I don’t see us funding another $ 50 million in the foreseeable future. There seems to be no appetite for that now. Everyone was so adapted to the good times that they forgot what the not-so-good times actually look like. ”
With a message from Josh O’Kane
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