After A Year Of Layoffs, How Do Startups Navigate Fundraising And New Hires?

While many factors came into play, one of the main drivers for layoffs in the tech industry in particular can be traced back to the pandemic. Lockdown measures and work-from-home mandates saw a boom in e-commerce and cloud services. Large tech firms expanded their operations and company valuations soared in line with the surge of demand at the time.

However, demand quickly waned after the pandemic at the same time as global markets contracted sharply. 

To compensate for overbuilding, tech giants Google, Meta and Microsoft began laying off workers in their thousands and 2023 became known as ‘‘the year of efficiency.’ 

This created a domino effect across the whole tech industry. In all, more than 191,000 workers at U.S.-based tech companies were laid off in mass job cuts in 2023.

Although the economic climate seems slightly warmer at the start of 2024, February still saw a high number of mass layoffs, with more than 46,000 layoffs in the tech industry in the first two months of 2024. Both large-cap companies and startups trimmed staff across the US, according to Crunchbase data. 

But where does this leave startups in 2024? 

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How layoffs impact fundraising 

Founders in 2024 are entering a precarious market. Late stage startup valuations have fallen. As interest rates rise and tech stocks languish, venture capitalists are holding tighter to their funds. Seed stage funding slumped 35 percent for startups year over year by late 2022, data from Crunchbase shows. 

And the recent layoffs are sending more startups to go hunting for those funds.

While these numbers paint a sobering picture, it doesn't mean that obtaining financing is out of the question. For many aspiring entrepreneurs, the challenging nature of the current VC market will be enough to act as a deterrent.

This is good news for entrepreneurs who remain committed to the strength of their business despite the challenging funding climate. 

For better or worse, times of economic uncertainty tend to act as a powerful litmus test when it comes to the strength and resilience of founders. 

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Startups change who and how they hire 

These hiring trends are also having a trickle-down effect on how startups are using any hard-won funding from investors. 

Before the 2023 layoff trend, startups were more likely to use funding to help with new tech hires to focus on product development to build out existing services or create new offerings. Now, startups are focusing on hiring sales and marketing experts. By using funding to scale up commercial teams, startups are likely trying to create a quicker path to revenue that can be demonstrated in figures with 1 to 2 quarters. 

Although senior executives and the expertise they hold often have the ability to transform fledgling companies into revenue-generating success stories, the limited amount of funding around in 2024 means these high-value hires are too hard to justify. What’s more, limited resources overall mean startups are also more likely to opt for more junior hires with the view to having them grow into the role and alongside the company. 

Still, startups have another way to tap into this invaluable expertise. Mass layoffs across the industry mean that more senior executives are currently on the job market with many keen to explore new projects and opportunities before committing to a permanent role. Startups can leverage this trend and use fractional hiring to tap into their knowledge for a few days a week without blowing the entire staffing budget on one employee. 

The economy does seem to be improving -- according to recent reports, startup hiring is expected to improve by 5% to 8% in the first half of 2024.

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A new hiring strategy in 2024 

Following a turbulent year for the labor market coupled with cautious investor activity, startups need to make hiring decisions a strategic matter. In particular, startups should look at the positives of these constraints -- for example looking at ways to leverage technology to fulfill specific needs.

Companies led by entrepreneurs who have faced and overcome financial challenges tend to be more resilient and make better decisions as they grow. 

Therefore, instead of fearing these challenges, it is important to see them as an opportunity to demonstrate commitment, creativity, and motivation to succeed in the eyes of investors and business partners.