Tech companies are shedding thousands of jobs, as interest rates and recession risks rise

Paul Brown used to work for a tech startup in Sydney, providing software to the police and other emergency services, until last week.

The 65-year-old IT worker was shocked to learn that he had been laid off, after just 19 months on the job.

But he is not alone. Dozens of his colleagues were also laid off as the company went through a tough round of cost cutting.

This trend is happening around the world as the Reserve Bank of Australia, the US Federal Reserve, and other central banks embark on an aggressive cycle of rate hikes, making it more costly for high-growth tech companies borrow money to finance their rapid expansion and hiring sprees.

“There has been a round of layoffs in fintech, startups and pre-IPO [initial public offering] companies,” said Mr. Brown, who worked as an enterprise architect and managed technology companies in previous roles.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume.

Job losses are accelerating in the tech sector as interest rates rise.(david bye)

“So there has been a movement to reduce the [cash] burn rate and preserve capital.

In recent months, more than 1,000 jobs have been cut at more established international companies such as Netflix, Twitter and Klarna, the buy-now-pay-later firm.

One of the world’s largest cryptocurrency exchanges, Coinbase, said it was laying off 1,100 workers, or 18 percent of its staff, as its chief executive warned of an economic downturn.

Peloton cut 2,800 jobs and replaced its CEO in February as the company miscalculated the staying power of the home-workout trend.

In Australia, several startups including Voly (grocery delivery), Brighte (buy now pay later), Envato (online marketplace), HealthMatch (clinical trials) and Zepto (payments platform) have made significant job cuts this year.

Meanwhile, digital-only bank Volt is closing, after failing to raise additional capital to finance its expansion, which has led its 140 employees to need to find a new job elsewhere.

Solar Job Losses

Solar technology company 5B is another Australian company that has seen recent job losses. The company was forced to cut 25 percent of its staff in June to keep its spiraling costs down.

A Caucasian man with a beard, wearing an orange high visibility vest.
5B co-founder Chris McGrath hired nearly 200 employees during the pandemic.(ABC News)

Chris McGrath, co-founder and chief executive of 5B, said it was a “very difficult decision” to make, but said the staff cuts were necessary to keep the business on “a more sustainable basis”.

Around that time, 5B raised $30 million from investors, which will instead be used to improve its product and supply chain. Its main innovation is a metallic device (an “array”), which is used to install solar panels on rooftops more quickly.

Some of his high-profile investors include former Prime Minister Malcolm Turnbull, wealthy businessman Simon Holmes à Court (who helped finance the teal Independents in the federal election in May), and the US power company AES.

Since 2020, Mr. McGrath’s workforce has grown rapidly from 30 to more than 200 employees (before a quarter of those jobs were eliminated).

The last couple of years was a golden opportunity for companies to borrow at rock-bottom rates to finance their expansion, as governments pumped trillions of dollars in stimulus into their pandemic-ravaged economies.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume.

Play the video.  Duration: 3 minutes 44 seconds

The technology sector is experiencing strong growth and demand for skills.(kathryn robinson)

But now the flow of cheap money is being cut off.

Governments and central banks are removing their emergency stimulus to contain an inflationary flare-up, as supply chain blockages and goods shortages (made worse by the war in Ukraine) have led both businesses and consumers experience the biggest price increases in decades.

Growing too fast ahead of a ‘crypto winter’

The price of bitcoin and other cryptocurrencies has tumbled amid this environment of higher interest rates and increased talk of whether major economies, particularly the US and Europe, will slip into recession.

Since hitting an all-time high in November, the crypto market has lost around 70 percent of its value, in what many have dubbed a “crypto winter.”

A Caucasian man with brown hair, sitting in a chair, smiling at the camera.
Holger Arians says his cryptocurrency company grew too fast.(ABC News: Simon Tucci)

In this difficult climate, Holger Arians, the CEO of cryptocurrency firm Banxa, had no choice but to lay off 70 of his employees (or 30 percent of his workforce).

“This was a very difficult decision that we had to make, unfortunately,” he said.

“In fact, our business has grown 100 times in terms of sales transaction volumes in the last three years.”

It also opened offices in the United States and the Netherlands.

“We’ve also become a much more global company now that we’re publicly traded in Canada.”

Banxa’s shares on the Toronto Stock Exchange peaked at C$7.50 in March last year. Since then, they have plummeted to just $CA1.

“We have not followed a strategy of becoming profitable because we wanted to grow with the market and add as many partners as possible. We have achieved that.”

“Our goal is to be profitable in the near future.”

‘Disastrous’ for startups

New start-ups also find it more difficult to attract funds from private investors.

“The pandemic has been somewhat disastrous for support for early-stage start-ups in Australia, outside of university settings,” said Murray Hurps, director of entrepreneurship at the University of Technology Sydney.

Leave a Comment