European startups will reduce their staff hiring by up to 80%
Tech stocks plummet on the stock markets and investors are increasingly cautious about investing in startups.
The startup world is suffering an unprecedented crisis, nervousness has crept into the industry and the NASDAQ, the technology index par excellence, has lost about a third of its value so far this year. Startup layoffs rose 350% worldwide in May. This negative trend will affect even startups that have recently raised a round. In Europe, there will be a significant reduction in the demand for jobs in startupemployeess, being more selective and reducing their hiring by up to 80%.
During the pandemic, investors were actually optimistic about tech startups. Confinements and restrictions forced the population to digitize both their consumption habits and their way of relating to each other. This change in the social paradigm towards a practically technological reality pushed venture capitalists to inject large levels of capital into the tech sector, raising the value of their shares on the stock market to historic highs. However, the new trend points to a decline in investor interest in startups in the face of cases such as that of the Asian giant SoftBank in its Vision Fund unit, dedicated to investing in startups, which had losses of more than 20.5 billion dollars, affecting its shares by 17%.
Thus, although 2022 seems to be marked by a decrease in investment in startups, this situation offers the opportunity for small and medium-sized startups to be more competitive with larger startups. In this regard, it should be noted that talent recruitment has been one of the biggest problems for the development of this type of tech companies, since, by their nature, they could not match the offers that large startups offered to their new talents. In recent years, the most powerful startups have had the easiest time attracting digital talent. However, the current scenario, where these companies will see how external investment in their projects will decrease, becomes an opportunity for small and medium-sized startups, which will be more competitive and will have a better chance to attract talent.
Hiring reductions and massive layoffs are a common option for startups to increase the amount of time they can survive before running out of capital. Between 7% and 12% of startups that have not yet found a solid market for their product, such as those offering financial products, will be forced to downsize. They will have the minimum team until they start generating revenues. Outsourcing and consulting firms will also be affected.
Disruptions in both public and private equity markets are shaping the 2022 tech industry . Geopolitical issues, inflation that can already be seen in major cities such as New York and rising interest rates are shaking the market. European startups are starting to feel the pressure of layoffs after large and well-known brands such as Getir and Klarna laid off 4,480 and 700 employees respectively in the month of May alone. Meanwhile, large established market players such as Meta, Twitter, Microsoft and Netflix have put hiring freezes in place.