Start-ups' optimism hits hard reality

Start-ups’ optimism hits hard reality

This masthead can also confirm layoffs at police software maker Mark43, after former staff posted online saying it had made an entire team redundant, payments company Zepto and medical management company Perx Health. (Mark43 did not answer repeated requests for comment and NSW Police, which it supplies, declined to comment. Chris Jewell, Zepto’s chief executive, said the downturn had forced Zepto to make the “heartbreaking” decision to lay off about 10 per cent of its staff, whose contribution to the company he praised. Hugo Rourke, Perx’s chief executive, said the company had made the tough decision to do a few layoffs in late May but had achieved some “customer wins” since then.)

The list does not stop there. Solar power company Brighte also recently cut jobs, while neobank Volt this week announced its closure.

The cuts that have been publicized are widely seen as the tip of the iceberg, with many companies quietly trimming headcount.

For founders, it is a delicate balancing act. “The dance is people need to grow to raise but they need to be financially disciplined to get there,” says one Sydney start-up staffer, who was not authorized to speak on the record.

In other words, venture capital investors tend to only back companies that are building revenue rapidly. But unlike a few months ago, Australia’s venture capitalists are now leery of firms that are spending at all costs to get there.

The customer research startup Dovetail is one of many firms still eagerly hiring during the downturn.

The customer research startup Dovetail is one of many firms still eagerly hiring during the downturn.Credit:

The outspoken American venture capitalist David Sacks, who was an early executive at PayPal alongside tech titans such as Elon Musk and Peter Thiel, said on the influential All-In Podcast last week that start-ups were getting the dance wrong.

He recalled a recent industry conference where founders were told they needed enough money to cover their company’s losses for the next three or four years because if they needed to raise more cash in one year, the amount of available money would have plunged by 75 per cent . When polled about how they would approach the situation, Sacks said, the results showed a contradiction.

‘There is a common set of values ​​that go beyond company to company and in challenging times that’s very useful.’

Jono Herman, Earlywork co-founder

“On the one hand the founders understood intellectually that we’re headed into a downturn, we’re headed into a recession, and so the polling reflected that,” Sacks said. “On the other hand if you asked the founders how they’re going to react to it… are you going to cut headcount or are you going to accelerate your business to beat competitors, everybody said ‘Oh we’re going to out -accelerate our competitors.’ So everybody thought they were the exception.”

Some Australian founders who have spoken with overseas venture funds in recent months confirm American firms are being told to make hard choices, fast. Others who are seeking funding report a more positive picture.

Dany Milham, the founder of rapid grocery delivery firm Milkrun, told this masthead that he’d had significant interest from overseas firms in a fresh capital raise despite the business losing $13 per order just months ago at one of its best stores. Another has found the overseas market more receptive than local venture capitalists, who the founder described as being wary of investing while they wait to see how severe the downturn is.

Local venture capital firms, such as Blackbird, Square Peg and AirTree, either declined to make any of their partners available or did not respond to calls seeking interviews. But the funds have previously said they are advising their companies to be more cautious but still have substantial amounts of money to invest in good companies.

Marina Wu, Jono Herman and Dan Brockwell (lr) from Earlywork partnered with a venture firm called AfterWork to launch a free service connecting people laid off to new jobs.

Marina Wu, Jono Herman and Dan Brockwell (lr) from Earlywork partnered with a venture firm called AfterWork to launch a free service connecting people laid off to new jobs.Credit:Rhett Wyman

It points to a multi-speed sector. Companies that held out from raising, raised and spent lavishly, or simply require a lot of cash to grow, are in a tough position. But many start-ups that were lucky or strategic enough to raise while the market was still roaring along and have spent judiciously since then are sitting on tens of millions of dollars in dry powder, allowing them to hire aggressively.

Customer research startup Dovetail, which raised money at a near $1 billion valuation late last year, has put up posters and a light rail ad in Sydney advertising its $5000 bonus policy for any member of the public who refers it a successful candidate.

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Investors at AfterWork Ventures, which puts money into early-stage companies, and Earlywork, a platform that shepherds people into tech careers, this week rapidly spun up a free tool to match laid off staff with companies still hiring. More than 100 firms signed up to the service — dubbed Between Work — in less than 24 hours.

Jessy Wu, an investment principal at AfterWork, says growing companies jumped at the opportunity to access talented staff with experience that are usually hard to find.

“The silver lining here is the opportunity for earlier stage companies to capture some of the talent that’s been shed by later stage companies, and harness the workers’ skills and experience as they scale,” Wu says.

Earlywork co-founder Jono Herman sees the way the community has rallied around Between Work as a demonstration of the sector’s collegiality at its best. It is born, he says, of a shared view of technology — much like that expressed by Teo — as a fundamentally positive force in the world and an empathy for founders and staff faced with a tough market.

“We didn’t spend a dollar on paid marketing,” Herman says. “It’s purely through the generosity of the ecosystem in getting the word out, which is amazing to see.”

“There is a common set of values ​​that go beyond company to company and in challenging times that’s very useful,” he says.

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