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Last week, Google announced plans to lay off 12,000 employees, roughly 6% of their full-time workforce. It’s not just FAANGS that are affected. Based on data, redundancies in January of 2023 alone totalled a third of the total layoffs that occurred in 2022. So what does this mean for the rest of 2023?
Here is an early view into the tech hiring market one month into the new year and our prediction for what you can expect to see going forward:
Global challenges in 2022
We have seen some unprecedented macroeconomic circumstances over the past year, from the war in Ukraine, to grappling with new COVID variants, supply chain issues, labour shortages, inflation, and the increasing effects of climate change.
Global venture funding reached $415.1B in 2022, and it shouldn’t come as a surprise that this is a significant drop, 35% down from what was a record in 2021. The funding slowdown was especially severe in the second half of the year, with Q4 2022 funding settling at approximately $65.9B.
A European perspective of the tech market
At Albany, we have a uniquely broad perspective of the European market. We speak with over a hundred C-suite tech leaders weekly (across CTO, CPO, CIO/CDO roles), coming from ventures at the Seed stage all the way through to Pre-IPO and Private Equity ownership. This also includes interim and fractional leaders; often embedded in several businesses at once, they are incredibly well-informed due to their exposure to the market and deeper networks.
The result of market impacts
Across our team, we have been gathering compensation data, tracking market movement, and noticing trends across the searches we have shared with our clients.
Although at the outset the state of venture capital appears alarming, we believe three pivotal effects to be true as a result of market impacts:
- This drop is less of a crash, and more a form of natural course correction.
- Candidates are wary of being oversold to and value stability more than ever.
- There has never been a better time to hire.
Decacorns such as Stripe, Klarna and Instacart experienced significant reductions in their valuations last year. In TechCrunch’s recent article, “Losing the horn”, many VCs indicated a belief that the majority of unicorns are no longer worth their coveted billion-dollar valuation status.
Crunchbase published a piece last week tracking the increasing bid-ask spread on secondary markets, concluding that it now averages 22%. When capital was cheap to raise, business valuations were artificially inflated, but the shift to scarcity is here— capital demand outpaced supply in some cases by over 145% in Q4 2022 (Pitchbook).
Although the recession has catalysed the decline we are seeing, this trend across venture capital funding is, in part, a natural course correction to a bloated market.
The crash and burn of pandemic darlings, such as Peloton and Zoom, has affected talent in the market. Many businesses promised flashy sign-on bonuses, uber-flexible workplaces, and an out-of-touch equity story upon exit. These promises were promptly backtracked, and candidates who had joined merely months prior have left feeling burned.
The picture now is that engineers and product managers don’t want to be rushed through interview processes and instead, candidates want context, assurances, hard stats on runway, and enough time spent with leadership for them to begin building trust.
As an exec search business, we are seeing senior leaders ask for more information around an offer, additional stages to get comfortable with making a potential move and spending time close-reading and requesting amendments to an offer contract before signing.
The war for talent has changed
Cost-cutting for many companies is a necessity for survival, and the previous “war for talent” has now become a battle for funding. As a side effect, businesses with sufficient capital are in an incredibly strong position within the talent market.
Previously, great candidates were enticed by generous RSUs paid out by big tech players, but with Meta, Google, Amazon, and others making cuts, the best of the best are no longer tied into these businesses with golden handcuffs. It’s times like this that create the perfect circumstances to make a pivotal hire — if you can afford it.
Overall, our early view of 2023 is that we are seeing the ripple effect from a multitude of circumstances that have led to this funding drought. As the economy continues its road to recovery, we are likely to see further down rounds, widespread cost-cutting measures, and a flurry of M&A activity. These are indicators of a business’s adaptability, and for those that do, this market represents a prime opportunity to expand and make strategic investments— even if this involves accepting a degree of dilution to raise further capital. Given we are in an investor’s market, we predict that in a few months’ time the ripple effect will begin to calm and an increase in investment activity will begin in H2.
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