VC Investments for Tech Startups Drop 26% in Q1 2022

Startups that had previously been seen as darlings have had to lay off employees, cut spending, cancel projects and generally scale back ambitions due to mounting economic headwinds and changing investor sentiment, The Wall Street Journal (WSJ) wrote Monday (May 16).

It’s all part of a changing appetite for investment risk that has seen companies suddenly falling out of favor that had faced warm receptions and rosy prospects only months ago, the Journal reported.

For example, Thrasio, an eCommerce company which had been expecting to be valued at $10 billion or more has not seen that deal come to pass. Thrasio, which buys and aggregates companies selling on Amazon, has instead had to slash 20% of its workforce in the last few weeks, has brought in a new CEO, and also had to cut back on engineering projects, according to ex-employees and a company memo obtained by the Journal.

Meanwhile, Reef Technology, which builds kitchens for food delivery services, once sought $1 billion in funding but has struggled to raise money. Although the Journal reported that the company had recently “struck a deal for over $250 million in funding”, citing people familiar with the matter, the company has still had to cut staff and close kitchens.

Fast-delivery startup Gopuff was seeking to raise $1.5 billion in December, but has now scaled that back to $1 billion and has also had to reduce headcount by about 3%.

The report aimed to draw a connection between stocks being hammered and companies having to cut their costs, as  money managers and venture capitalists avoid companies with high valuations, while also demanding that existing holdings spend less and improve their margins.

Taken together, the market’s recent reversal comes after years where profitability had taken a backseat to growth, with the WSJ reporting that venture capital funding was down 26% in the first quarter of 2022 from the previous quarter.

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

The shift in sentiment comes as the tech-heavy Nasdaq has led a market decline that started in November but has also seen all the major benchmarks under pressure this year, as well as many other niche indicators, such as PYMNTS’ FinTech IPO Index which has fallen close to 60% from its recent peak last spring.