Tech layoffs show high-flying sector not immune to slowdown

Canada’s tech sector has grown rapidly in recent years, as local startups and foreign giants set about hiring hundreds of thousands of talented and well-educated workers. But that expansion has slowed recently, as high inflation, rising interest rates and falling cryptocurrencies have taken much of the optimism out of the sector.

Chris Albinson, CEO of the Waterloo-based incubator Communitech, says the pullback in the US is more pronounced because there are more of what he calls “moon-shooting” companies with dubious fundamentals and they suddenly find themselves unable to adjust to the new reality.

Canadian tech companies are doing comparatively better right now because they are generally much better managers of capital, he says, but that doesn’t mean there isn’t anxiety.

“There are some founders who were 18 years old when the last recession happened,” he told CBC News. “There will be stress on the system, but I think they will ultimately come out much stronger.”

Valuations of tech giants like Meta, Amazon, Apple and Netflix have tanked in recent weeks, and where there was once a fierce war for talent, many tech giants are implementing hiring freezes and even cutting staff.

US streaming giant Netflix announced Thursday that it is cutting another 300 jobs, the second time in as many months that it has announced layoffs of that magnitude.

The collaborative website layoffs.fyi has documented more than 20,000 tech job cuts in the last two months alone, mostly in and around major US tech hubs like Seattle and San Francisco.

While the cutbacks in Canada are less dramatic, they are happening.

Canadian financial tech unicorn Wealthsimple laid off 13 percent of its staff last week, citing “unprecedented” levels of volatility to explain the roughly 160 job cuts. “Many of our clients are experiencing a period of uncertainty in the market that they have never experienced before,” CEO and founder Michael Katchen told staff when announcing the news.

Silver lining

Jacqueline Au was among those laid off from the Toronto-based business. She suspected something might be up when she noticed the company started spending less in its department, marketing, earlier this year. “When that happens…it’s natural for the team to think, well, what’s going to happen to my work if we don’t spend money on marketing?”

It was the first time she had been fired, and although she said it was unpleasant, she is enjoying the time off to think about her next career move. She enjoys the tech sector, she said, but she knows more job cuts are coming, so she will choose who she signs up with next.

“I think this is just the beginning, I think the industry is going to have to keep cutting fat to stay afloat,” he told CBC News. “I think there will be ups and downs, but winter is here to stay.”

Jacqueline Au was one of dozens of people laid off from fintech firm Wealthsimple earlier this year, and she expects more layoffs to come in the tech sector. (Jacqueline Au)

Vancouver-based Thinkific laid off about 20 percent of its staff in April, and Sumeru Chatterjee was one of about 100 people laid off. Originally from India, Chaterjee came to the US to attend college and worked various tech jobs for about a decade before making the leap to come to Canada in 2020.

“Last year, the general sentiment in the industry … was that we need to grow, we need to rapidly expand our market leadership to hire a lot of people,” he told CBC News. “So the firing was kind of a dramatic turn of events.”

He says the tech sector has grown so fast in the last decade in large part by burning through venture capital money to gain market share without having to worry about things like profits. “Normal business metrics like profitability and cash flow were…almost frowned upon, and I think a lot of people are realizing that if you want to run a business, you have to have some fundamentals like a profitable business and customers who pay you.

‘Survive in order to thrive’

The mood from the stage at the Collision Conference in Toronto, where tens of thousands of techies from over 100 countries met in person to discuss all things digital, was unabashedly positive this week. But on the sidelines, there were whispers of bubbles bursting.

Sumeru Chatterjee recently lost her job at a Vancouver-based tech company and has since turned her attention to helping other tech workers network with one another. (Dillon Hodgin/CBC)

“Right now, everyone who is innovating and/or investing in technology or startups is trying to understand what exactly is going on right now,” said Deena Shakir, a partner at venture capital firm Lux Capital, based in New York. in Silicon Valley. “We are the topic of conversation at every partner meeting, and at every lunch and coffee break.”

While he rejects the notion that the tech sector is in a bubble again, he adds that one thing that is clearly bursting is expectations of endless growth at the expense of profitability, which is a good thing, he says.

“We have been advising … our companies to think long term to make sure they have enough capital reserves to weather this storm,” he said. “Survive so you can thrive is an important mindset to think about.”

Survival is key in the cryptocurrency space, which was shaken when a $12 billion trading platform known as Celsius froze withdrawals earlier this month. That hit major companies like Crypto.com and Coinbase. Although they increased during the pandemic, they are now laying off thousands of workers in the US and Canada, and rescinding job offers.

Deena Shakir is a partner at Lux venture capital, which invests in technology companies. (CBC)

Many crypto firms were scheduled to attend Collision in person, but Paddy Cosgrave, the conference’s founder and CEO, said many of them pulled out at the last minute. Celsius CEO Alex Mashinsky was one of those scheduled to attend, but did not.

“I can understand why [he] he had to pull out,” Cosgrave said. “I think he’s got a big fight on his hands to resolve this situation.”

Whatever dark cloud may be hovering over the crypto space, Cosgrave says it had no impact on overall attendance, which topped 35,000, an enthusiasm that makes a lot of sense to him.

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“When things get uncertain, everyone looks for answers,” he said. “And certainly in the last few weeks, there have been a lot of big questions about what exactly is going on with the technology and cryptocurrencies in particular.”

While layoffs may be a short-term prospect, Cosgrave says the future for tech in Canada and abroad still looks bright.

“What happens when you fire very smart software engineers? A lot of them go off and start new companies, and some of those companies are already here,” he said.

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