A wave of layoffs and hiring freezes in the American tech sector is set to hit Canada hard, industry watchers say. They warn that although job cuts have already happened here, bigger reductions lie ahead.
By Sean Silcoff* – June 2022
“The message everyone is receiving is: ‘Protect your capital.’ There will be many more layoffs, no question,” said Jacques Bernier, managing partner with Montreal “fund-of-funds” firm Teralys Capital.
“It’s going to be a bloodbath,” said billionaire Vancouver investor and entrepreneur Markus Frind, who owns a majority of online furniture seller Cymax Group Inc. and backs several venture capital firms, all of whom are telling their companies to review their spending plans. “It’s going to be way worse than 2008,″ when the credit crisis sparked a recession.
Canadian bank challenger Wealthsimple Technologies Inc. has frozen hiring. Thinkific Labs Inc., an online platform for course creators, and Legible Inc., an online e-book marketplace, both listed on Canadian exchanges, announced deep staff cuts this spring. Montreal meal-kit delivery company Goodfood Market Corp. cut 2.8 per cent of its 2,500-plus jobs.
Several other fast-growing Canadian tech companies have quietly cut jobs this year to prepare for what could be a prolonged downturn. They include:
Those cuts are just a preview. Several Canadian venture capitalists told The Globe and Mail many portfolio companies are either considering layoffs – including sweeping “reductions in force” – in the coming months or have already started.
“My companies are talking about layoffs and not hiring right now across the board,” said Fraser Hall, managing partner with Vancouver’s Rhino Ventures. While many Rhino-backed companies, including Thinkific, were considering going public in early 2021, the prospect of hiring freezes, job losses and cost cuts now dominates boardroom conversations, Mr. Hall added.
“There is no one saying ‘grow and spend all this money and we’ll fund you forever and a day.’ That era is over.”
Michele Romanow, CEO of Clear Finance Technology Corp., which is known as Clearco
The layoffs are part of a sector-wide belt-tightening that has been more evident in the U.S. as unprofitable tech companies, pushed by their investors, look to reduce their “burn” – the pace at which their cash reserves dwindle – and extend how long they can pay for their operations with their existing funds. The shift comes after a talent crunch in the industry that has resulted in sharply rising compensation for highly sought-after workers.
According to website Layoffs.fyi, which tracks tech-sector layoffs globally, the second quarter has already been the biggest three-month period for layoffs since the outset of the pandemic in early 2020, with 141 layoff events and 25,612 job losses as of Friday.
One of the latest companies to announce a reduction in force was San Francisco-based Sonder, a short-term rental provider led by Canadian CEO Francis Davidson, which last week cut 21 per cent of its corporate employees and 7 per cent of its front-line staff. Other U.S. tech companies have instituted hiring freezes, including Facebook parent Meta Platforms Inc., Salesforce, Inc. and Intel Corp.
U.S. venture capital giant Sequoia Capital recently warned portfolio companies that this is a “crucible moment” and that they must act quickly to cut costs and preserve cash to get through the uncertain period ahead.
“Absolutely investors have moved to a much greater focus on profitability, or path to profitability, and unit economics,” said Janet Bannister, managing partner with Montreal-based Real Ventures.
Robert Antoniades, general partner with Toronto’s Information Venture Partners, said he has told his companies to prepare to survive without capital for two years.
The industry’s new-found austerity contrasts sharply with the previous “grow-at-all-costs” mentality fuelled by cheap capital, COVID-19 stimulus spending and an accelerated shift to digital channels during lockdowns. That led to record venture capital fundraising and a boom in initial public offerings.
Since then, rising inflation has prompted swift hikes in interest rates and supply chain challenges have worsened owing to the war in Ukraine, prompting a selloff of tech stocks. The median valuation of cloud software stocks is at a four-year-plus low, according to Bessemer Venture Partners’ Nasdaq Emerging Cloud Index.
The market now wants young tech companies to become more efficient, said Michele Romanow, the Dragons’ Den star and CEO of Toronto e-commerce merchant financier Clear Finance Technology Corp., which is known as Clearco.
“There is no one saying ‘grow and spend all this money and we’ll fund you forever and a day.’ That era is over.”
Clearco, which raised US$315-million in 2021 and has nearly 500 employees, must keep growing revenue or cut costs, she said. The latter course, she added, is “the last thing I want to do, and don’t need to do right now. But I also need to be realistic about what the market will want.”
Mr. Bernier, whose Teralys is a leading funder of Canadian venture capitalists, said the unfolding situation won’t be as bad as the early 2000s after the dot-com bubble burst and devastated the sector. But it will be closer to that than the relatively mild fallout from the 2008-09 recession, he said.
Buyers are starting to pull out of tech financings and buyouts, or demand they be repriced at lower valuations, industry observers say – although many expect private equity firms to spark a wave of buyouts of devalued public companies.
“What we’re typically seeing now is that it is becoming harder to raise capital,” said Chad Bayne, co-chair of Osler, Hoskin & Harcourt’s emerging and high growth companies practice. “Last year it was crazy. But I can’t see us doing another $50-million financing any time soon. There appears to be no appetite for it right now. Everyone has been so conditioned to the good times they forgot what the not-so-good times actually look like.”
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About the Author’s
Sean Silcoff writes about technology and innovation for the Globe and Mail. He is the winner of three National Newspaper Awards and is the co-author of Losing the Signal: the Spectacular Rise and Fall of BlackBerry, which was released in May 2015. Losing the Signal won Canada’s National Business Book Award and was shortlisted for the international Financial Times & McKinsey Business Book of the Year. Sean joined the Globe and Mail in January 2012; he previously worked as a columnist and Montreal correspondent for the National Post and as a staff writer at Canadian Business Magazine.
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