How are Europe’s startups preparing for the tech downturn?

The majority of startups are making cuts to prepare for a tech downturn, but most aren’t hitting the panic button just yet, according to respondents to our recent reader poll of how tech companies are responding to market uncertainty.

94 founders and startup operators shared their thoughts and experiences with us from a range of company sizes, industries and countries in the European tech industry. The Word of the Day: Caution.

72% said their company has taken steps to enlarge its runway, and 83% believe fundraising will become more difficult in the near future. 61% have cut or frozen hiring plans and 52% feel less secure in their jobs. But only 22% of surveyed startups have laid off employees so far, and those who are hiring predict an abundance of top tech talent is now becoming available.

We also asked how conversations with investors have changed and what steps startups are taking to move their money further.

Here’s what Sifted readers told us.

The hiring landscape for startups during a technology downturn

Two-thirds of those surveyed told Sifted their startup had withdrawn hiring plans or frozen them entirely, consistent with recent reports from the job platform otta that recruitment at technology companies has fallen by 20% in the last three months.

As Technology stocks crash and become VCs always stingy Some readers said they are only hiring for essential roles with their money as the focus shifts from growth to efficiency.

“We no longer negotiate salaries.”

Round sizes have halved in recent months, according to one founder, and “this reduced fundraising ability means we’ve had to scale back hiring.”

Another said their startup is no longer negotiating salaries, suggesting that balance of power in the labor market is shifting from candidate to employer. Just months ago, in a reader survey Regarding the hiring landscape, founders and startup operators told Sifted that they are offering higher salaries and better perks as competition for the best tech talent increases.

“Some of our job offers have been rejected because candidates were afraid to move.”

But not only employers get cold feet. The uncertainty in the tech scene is also making some candidates reluctant to accept jobs, and one respondent who works in their startup’s talent department said candidates have turned down job offers because they are “afraid to move.”

Layoffs at startups

Other founders and startup operators told Sifted that they are actively trying to cut their payrolls in anticipation of the technical downturn. They are not the only ones – several well-known European technology companies are lay off staff while trying to prop up finances in the face of a looming economic downturn.

While Sifted readers reported that layoffs aren’t widespread at the moment, about a third of them believe the startups they work for are laying off employees in response to the uncertainty in the tech scene.

Because of this, startup employees are significantly more concerned about their job security, and 52% of respondents told Sifted they feel either a little or a lot less secure in the current climate.

We also asked Sifted readers whose startups had laid off employees which departments were affected. Although the sample size is small, the data still paints an interesting picture of the roles European tech companies are taking back.

Sales and marketing departments have seen the most layoffs, and a number of respondents told Sifted they are no longer hiring for those positions either.

Unsurprisingly, talent and recruiting teams have also been impacted – despite being in extreme demand late last year. Talent jobs also recorded the highest number of layoffs among employees Klarna, according to a chart shared by the company.

Do Startups Have a Recruitment Chance During the Technology Downturn?

But not all are cutting hiring or laying off employees, and 39% of respondents told Sifted they are continuing to hire as planned or are increasing their efforts to hire technicians.

“Economic uncertainty is the best time to bring the best talent to market.”

Some said they are drawing on the pool of talent looking for new jobs following layoffs at some of Europe’s biggest tech companies.

“Now is the time to hire,” said one founder. “Many otherwise hard-to-get talents are becoming available. Economic uncertainty is the best time to bring the best talent to market.”

Another agreed, saying they “believe there will be tremendous opportunities to attract top talent from competitors who are failing”. One respondent told Sifted that their startup is actually considering accelerating growth plans because so much talent is coming to the market.

Making money goes on

72% of Sifted readers told us their startup is already taking steps to grow its career, with the biggest cuts being in hiring and marketing spend. Of those whose startup hadn’t made any cuts yet, half thought they would in the near future.

For many, this means a deceleration into the downturn.

“We plan to sacrifice some growth to be more efficient,” said one founder — but this could negatively impact the business in general, they added. “I’m assuming this means we won’t hit our sales targets – because no marketing spend means fewer leads, which means fewer sales. This will cause commissions to go down and the best sellers to leave.”

Outside consultants are also being cut by many as startups try to bring as many functions in-house as possible, and some respondents also said they are reducing office space to cut costs.

Startup fundraising during a tech downturn

83% of Sifted readers told us they think it will become more difficult to raise funds in the near future, and several said they are considering it revenue-based financing instead of traditional VC.

“We have lowered our expectations for funding amount and valuation.”

Eighteen respondents told Sifted that their startups are going through a round, with the majority reporting that investors are becoming more cautious and increasing due diligence. Others said the cost of capital has increased significantly.

“We haven’t changed our pitch,” said one founder, “but we’ve lowered our expectations for the funding amount and valuation.”

Increased investment scrutiny has been positive for companies with “good fundamentals,” according to one founder, as it allows them to stay above the “FOMO noise.”

Seventeen Sifted readers said they plan to fundraise in the near future. Some expressed concerns about the amount of equity they would have to give up and expected that when pitching they would have to place more emphasis on how the company would make money.

However, one founder was confident that the market will recover quickly. “At the moment the situation is very uncertain, but that will change in the autumn,” they said.

“I’m stressed and it feels like I’ve got whiplash […] previous milestones changed overnight.”

pressure from investors

41% of respondents told Sifted they are under more pressure from investors to achieve profitability, which has made some founders feel less secure.

“I’m stressed and it feels like I’ve got whiplash,” said one. “Previous milestones have changed overnight and there is no recognition for meeting previously agreed milestones.”

Another told Sifted that while their startup “has a very close relationship with all of the shareholders who are active in the company, go-to-market goals and deadlines are constantly pushed back, which creates friction.”

Others, however, said the increased focus on profit was “understandable” and had “been positive and brought clarity to leadership.”

Are founders and startup operators affected?

While things are expected to get a little trickier for most startups before they get better, panic hasn’t set in yet.

But founders with less runway are concerned.

“Even with significant cuts,” said one founder with six to 12 months of cash in the bank, “I worry we won’t have enough runway to weather the storm.”

Others think whether or not the company can raise its next round will be crucial or not. “If we can plant our seeds, we will be fine for this downturn,” said one respondent. “If we can’t do that, it will all end very quickly.”

However, some founders and startup operators are less concerned, viewing the market as flat after a whirlwind of two years of inflated valuations and shotgun investments.

“The current economic uncertainty is exaggerated,” said one founder. “It’s tough for late-stage companies with inflated valuations, but most of the fears we’re seeing in the market come from VC funds that invested in 2020-21 [because they were worried about missing out on the best deals].”

“Savvy investors and companies are carrying on as before, in terms of careful investing and lean building,” they added.

“The economy is not bad, it’s getting back to normal,” said another. “The last few years have spoiled founders.”

Kai Nicol-Schwarz is a reporter at Sifted. It covers healthtech and community reports and tweets from @NicolSchwarzK.

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