Tech firms cut thousands of jobs, as interest rates and recession risks climb

Paul Brown used to work for a tech startup in Sydney, providing software to the police and other emergency services — until last week.

The 65 year old IT worker was surprised to learn that he had been retrenched, after just 19 months on the job.

But he’s not alone. Dozens of his colleagues were also laid off, as the company underwent a bruising round of cost-cutting.

This trend is occurring worldwide as Australia’s Reserve Bank, the US Federal Reserve and other central banks embark on an aggressive rate hiking cycle, making it more expensive for high-growth tech companies to borrow money to fund their rapid expansion and hiring sprees.

“There has been a round of lay-offs in fintech, startups and pre-IPO [initial public offering] companies,” said Mr Brown, who has worked as an enterprise architect, and managed tech companies in previous roles.

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Job losses accelerate in the tech sector as interest rates rise.(David Chau)

“So there’s been a movement to reduce the [cash] burn rate, and preserve capital.”

In the past few months, more than 1,000 jobs have been cut at more established international companies, like Netflix, Twitter and buy-now pay-later firm Klarna.

One of the world’s biggest cryptocurrency exchanges Coinbase said it was sacking 1,100 workers, or 18 per cent of its staff, as its CEO warned of an economic recession.

Peloton eliminated 2,800 jobs and replaced its CEO in February, as the company misjudged the staying power of the exercise-at-home trend.

In Australia, several startups including Voly (grocery delivery), Brighte (buy now pay later), Envato (online marketplace), HealthMatch (clinical trials) and Zepto (payments platform) have reportedly made significant job cuts this year.

Meanwhile, digital-only bank Volt is closing down, after failing to secure extra capital to fund its expansion, which has led to its 140 employees needing to find new work elsewhere.

Solar job losses

Solar tech firm, 5B, is another Australian business where job losses have recently occurred. The company was forced to cut 25 per cent of its staff in June, to keep its spiraling costs down.

A Caucasian man with a beard, wearing an orange high-visibility vest
5B co-founder Chris McGrath hired almost 200 staff during the pandemic.(abcnews)

Chris McGrath, 5B’s co-founder and CEO, said it was a “very difficult decision” to make, but maintaining the job cuts were necessary to keep the business on “a more sustainable footing.”

Around that time, 5B raised $30 million from investors, which will instead be used to improve its product and supply chain. Its main innovation is a metallic device (an “array”), used to install solar panels on rooftops more quickly.

Some of its high-profile investors include former prime minister Malcolm Turnbull, wealthy businessman Simon Holmes à Court (who helped fund the teal Independents at the May federal election), and US electricity company AES.

Since 2020, Mr McGrath’s workforce grew rapidly from 30 to over 200 employees (before a quarter of those jobs were culled).

The past couple of years was a golden opportunity for businesses to borrow money at very low rates to fund their expansion, as governments pumped trillions of dollars worth of stimulus into their pandemic-ravaged economies.

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The tech sector is seeing strong growth and skills demand.(kathryn robinson)

But the flow of cheap money is now being turned off.

Governments and central banks are removing their emergency stimulus to contain an inflation blowout, as supply chain blockages and a shortage of goods (worsened by the war in Ukraine), has led to both businesses and consumers experiencing their biggest price rises in decades.

Growing too quickly before a ‘crypto winter’

The price of bitcoin and other cryptocurrencies have tanked amid this higher interest rate environment, and increased chatter about whether major economies, particularly the US and Europe, will fall into recession.

Since hitting a record high in November, the crypto market has shed about 70 per cent of its value, in what many have dubbed a “crypto winter”.

A Caucasian man with brown hair, sitting on a chair, smiling at the camera.
Holger Arians says his cryptocurrency firm grew too quickly.(ABC News: Simon Tucci)

In this tough climate, Holger Arians, the CEO of crypto firm Banxa, had little choice but to lay off 70 of his employees (or 30 per cent of his workforce).

“This was a very difficult decision we had to make, unfortunately,” he said.

“In fact, our business has grown 100 times in terms of sales transactions volumes over the last three years.”

It also opened offices in the US and Netherlands.

“We’ve also become a much more global company, now that we’re publicly listed in Canada.”

Banxa’s shares on the Toronto Stock Exchange peaked at $CA7.50 in March, last year. They have since plummeted to just $CA1.

“We haven’t pursued a strategy of becoming profitable because we wanted to grow with the market, and add as many partners as possible. We’ve succeeded in that.

“We’re aiming to be profitable in the near-term future.”

‘Disastrous’ for startups

Fledgling startups are also finding it tougher to attract funding from private investors.

“The pandemic has been kind of disastrous for early stage startup support in Australia, outside of university environments,” said Murray Hurps, the director of entrepreneurship at the University of Technology, Sydney.

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