Silicon Valley Technology Company Layoffs: Unicorns Discount Financing Triggered VC Giant Fund Discussion

At the end of March, hundreds of employees of Silicon Valley electric scooter start-ups Bird entered the online conference called "COVID-19 Update". Two minutes later, they learned that they had lost their jobs.

Julia Black reported on her friend's experience on Twitter: over 400 employees were laid off by a preset message, "her manager never even said goodbye."

Although Bird quickly clarified that the redundancy information was not pre recorded, it did not hinder hundreds of employees from losing their jobs during the epidemic.

Since March this year, the Silicon Valley Unicorn has entered the layoff time: the Airbnb global plan has laid off nearly 1900 people, which is equivalent to 1/4 of the total number of employees. In nine months, Bird has been laid off in the unicorn array for more than 400 people, accounting for about 30% of the total number of employees. Uber and Lyft, which have already been listed, are also planning to lay off 3700 people and 1000 people respectively, accounting for 14% and 17% of the total number of employees respectively.

According to a survey conducted by Silicon Valley Leadership Group, 18% of respondents said they had reached the critical point of layoffs or planned layoffs.

"I am afraid the number of companies with layoffs will continue to grow." Carl Guardino, President of Silicon Valley Leadership Group, said.

In fact, the start and expenditure reduction of technology enterprises has occurred since 2019. - Xinhua News Agency

Layoffs and weight loss, grain storage for the winter

The new crown pneumonia has hit Silicon Valley start-ups, especially the ToC business. On the one hand, layoffs and downsizing, on the other hand, financing grain storage has become a common choice for Silicon Valley technology enterprises.

In early April, after announcing the layoff plan, Airbnb disclosed the information of the new round of financing: the company completed the scale of $1 billion in debt and equity, and the investor was private equity firm Silver Lake and Sixth Street Partners.

Airbnb did not disclose the specific terms of the transaction. Some media reported that the valuation of this round of financing has been reduced to $18 billion, which has shrunk by nearly half compared with the valuation of the company's $31 billion in 2017.

Zhang Lu, founding partner of Fusion Fund, observed that the valuation of early projects in Silicon Valley was probably down by 20%-25% in the first quarter, and that the growth and late stage projects were more serious in terms of discount financing, or even a new round of financing in accordance with the valuation of eighty percent off.

"Some companies have a lot of cash in their accounts, but after all, they hire too much. In addition, the board asked the emerging companies to prepare enough cash flow to tide over the economic downturn, and many companies chose to cut costs through layoffs. Zhang Lu believes that Silicon Valley start-ups should make more capital preparations, "part of the cash is to survive, and the other is to win share after the competitors leave the field."

At the end of March this year, satellite operator OneWeb filed for bankruptcy protection. The company founded by Gregory Thane Wyler in 2012 was a strong rival of SpaceX, and had invested $2 billion in Softbank group.

There is no final conclusion as to where OneWeb's assets will eventually flow. It is reported that enterprises and investment institutions including Amazon, SpaceX, Eutelsat, Cerberus Capital Management and two Chinese companies are participating in the bid for OneWeb assets.

The epidemic is only a fuse.

In fact, the start and expenditure reduction of technology enterprises has occurred since 2019.

Statistics from Challenger, Gray & Christmas, an American employment consultancy, show that the total number of layoffs announced by American Technology Corp in 2019 reached 64 thousand, up from 351% in the previous year. In the second half of 2019, LendingClub, Uber, WeWork and other technology unicorns were laid off in the second half of 2019.

In the Silicon Valley technology enterprise, which was laid off in 2019, Uber launched three rounds of layoffs in 2019. Uber chief executive Dara Khosrowshahi said in her mail that she wanted to create a new normal mode of work, including "finding out and eliminating duplication of work, and adhering to high standards of performance".

The outbreak has exacerbated external uncertainty. In early March this year, Sequoia Capital sent a letter to the founder and CEO of us member enterprises, which reminded entrepreneurs to prepare for the "black swan" and assess the impact of the epidemic on business.

Sequoia Capital has six business evaluation recommendations for the invested enterprises, one of which points out that "it is time to seriously assess whether we can do more things with less money and increase productivity".

As for the growing wave of layoffs in Silicon Valley, Zhang Lu said: "we should treat this wave of layoffs with an objective attitude, and we should not blame the new crown pneumonia."

For VC investors, the low tide period is a good opportunity for early investment, and entrepreneurs who have gone through the cycle have proved that the company set up at low tide has become a real big business. Of course, the premise is to survive.

"Next year, whether big or small, will be very challenging." Zhang Lu told the twenty-first Century economic report that the first tier VC investment institutions in Silicon Valley generally increased investment in the management of the projects already invested. The specific measures include more time spent by fund partners on post investment services, and fund replenish personnel in the value-added services of the projects already invested.

Pondering over the epidemic period of VC in Silicon Valley

The hard life of the Silicon Valley Unicorn has also brought the introspection of VC investors.

Over the past few years, Silicon Valley technology company has achieved rapid growth in valuation with the support of capital. Uber, WeWork, Palantir, Airbnb, Lyft and other super unicorns have grown up under such a background. Lyft and Uber have landed in the capital market in 2019.

The large fund that has been established over the past few years is one of the drivers of the overall valuation of Silicon Valley technology enterprises. The vision fund launched by Softbank group has nearly $100 billion in the first phase, and has invested $74 billion 600 million in 88 companies as of the end of December 2019. After Softbank group, the Mega-Fund began to appear more in the PE/VC industry. Many VC investment institutions launched a new fund far exceeding the management scale since 2018.

According to statistics from the third party organization PitchBook, the trend of us VC institutions to raise giant funds continues. In the first quarter of this year, the new funds raised by the US VC sector had nearly half of the VC stage huge funds with a scale exceeding US $1 billion.

The amount of capital that start-up companies can bear at different stages is limited. The scale of investment from PE and VC funds is bigger and bigger, bringing about some companies' overvaluation, and the extension of the withdrawal period of investment funds.

Capital intensive technology companies choose to break their arms in the winter to survive, and also attract the introspection of PE/VC investors. In a recent interview, Sun Zhengyi admitted that the vision fund did have "tactical mistakes", though he would not change the initial investment strategy because of the failure of projects such as WeWork and OneWeb.

"Mega-Fund (huge fund) has its own reason to form an investment ecosystem from start-up, growth and even maturity. The fund has stronger overall compressive capacity and can reduce the impact of the economic cycle on the invested enterprises in the ecological environment to a certain extent." According to Zhang Lu analysis, the investment strategies of different fund management teams are not the same. VC institutions have their own reasons for setting up large funds.

"We believe that VC is a catalyst rather than a necessary reactant." Zhang Lu, who is mainly concerned about early investment, still believes that VC funds are not used by companies to survive but start-ups to accelerate.