VC Investments for Tech Startups Drop 26% in Q1 2022

Startups that had previously been seen as darlings have had to lay employees off and cut spending, canceling projects and generally scaling back ambitions, due to a seriously changed economy, The Wall Street Journal (WSJ) wrote Monday (May 16).

This is all part of what WSJ characterizes as a changed playing field for companies, even those that had seen sunny skies on the horizon months prior.

For example, Thrasio, an eCommerce company expecting to be valued at $10 billion or more, but that has not come to pass. Thrasio, which buys and aggregates companies selling on Amazon, has had to slash 20% of its workforce in the last few weeks. It’s added a new CEO as well and has had to cut back on engineering projects, according to ex-employees and a memo WSJ had seen.

Meanwhile, Reef Technology, which builds kitchen for food delivery services, once sought $1 billion in funding but has struggled to raise money. The company has cut staff and closed kitchens. And Gopuff, a fast-delivery startup, was seeking to raise $1.5 billion in December, but now is trying to get $1 billion. It has laid off about 3% of its workers.

WSJ was able to observe a trend in which stocks are being hammered and companies have been trying to cut their costs. That has also seen money managers leaving startups and venture capitalists avoiding high valuations, and also demanding companies spend less and improve their margins.

All of it added up to a reversal after years where profitability took a backseat to growth. WSJ reported venture capital fell 26% in the first quarter of 2022 compared to the fourth quarter of 2021.

See also: Plummeting FinTech IPO Index Carries Warning for Future Startup Funding

PYMNTS wrote that the recent environment is seeming to show a serious change rather than a mild downturn.

The Nasdaq’s down trend, along with a Monday rally which fizzled out, shows that, the report says.

The FinTech Index from PYMNTS has been trading at an all-time low and will likely be off around 50%, with recent readings off 75% from the peaks.