VC-backed companies under pressure with bleak macro-economic and geo-political outlook
Swedish “buy now, pay later” company Klarna has announced its intention to lay off 10% of its global workforce in a pre-recorded video message. Klarna CEO Sebastian Siemiatkowski cited “the war in Ukraine unfold, a shift in consumer sentiment, a steep increase in inflation, a highly volatile stock market and a likely recession” as the reasons for the layoffs.
This news comes off the back of a report which emerged last week, stating that the Swedish company’s valuation fell by 30% from the $45.6 billion valuation it received last June.
Even with the decreased valuation and layoffs, Siemiatkowski reassured employees that “Klarna continues to hold a strong position in the market” and says he remains “relentlessly optimistic about Klarna’s future.
BNLP businesses boomed at the start of the pandemic, where lockdowns meant that customers had little else to do with their time but shop.
More than two years on, however, luxuries are just not in the budget of many consumers, and clearly, retailers are feeling the pinch. With ever-increasing fuel costs, utilities rising by 50%, NHI contributions increasing, food prices rocketing, and inflation expected to reach more than 10% by year-end, consumers are tightening their belts. BNLP businesses, such as Klarna, have insights into these sentiments, with their product being used by 17 million people in the UK.
Klarna is not alone in its troubles. Grocery delivery start-up, Gorillas, has also recently announced its intentions to cut 300 jobs – around half the employees at its Berlin headquarters. Gorillas are also looking at pulling out of Italy, Spain, Denmark, and Belgium. According to a TechCrunch report, the company has a large debt to suppliers, with a burn rate of $50 million to $75 million.
More venture capital-backed companies will likely announce layoffs and hiring freezes as they prepare for tough times ahead. Layoff tracker, Layoff.fyi reported that in Q2 of 2022, over 13,000 tech start-up employees had been let go.
Other casualties of the current negative macroeconomic outlook include AI start-up BeyondMinds, which recently closed its doors, and healthtech business Kry’s reduced its team by 10%.
Siemiatkowski admitted that Klarna’s decision to reduce numbers was one of the “hardest” decisions in their history but a necessary move to stay “laser-focused on what really will make us successful going forward.”
“While crucial to stay calm in stormy weather, it’s also crucial not to turn a blind eye to reality,” he added. “What we are seeing now in the world is not temporary or short-lived, and hence we need to act.”
Ken Brotherston, TALiNT Partners CEO also made comment: “The US and European tech markets are very turbulent, inflation is high and the war in Ukraine and ongoing supply chain issues in China all create a perfect economic storm. The impact on employment/hiring is less clear as there are structural shortages in many markets but it’s clear that buyers are spending less and this results in diminished demand for retail staff.”