Just a few months ago, discount hotel chain OYO seemed unstoppable. The India-based startup touted plans for global expansion and saw its valuation double to $10 billion in October. But in mid-January, the company began sweeping layoffs that have seen thousands lose their jobs.
Last September, Fair.com, a car-leasing startup that raised nearly $400 million in a funding roughly a year earlier, acquired one of its rivals, Canvas, only to slash 40% of its workforce weeks later. The goal, according to a memo at the time that Fair.com directed CNN Business to from its then-CEO, was to “be a smaller team, focused on doing fewer things well.” One laid off Canvas-turned Fair employee said it was “a rollercoaster.” (Fair declined to comment beyond the memo.)
Meanwhile, Wag, a startup that raised $300 million for its Uber-style dog walking business in early 2018, held a San Francisco holiday party on a Friday where it rented out a lounge with catered food, an open bar and a photo booth, one former employee told CNN Business. The following Monday, it let go of at least 90 staffers and announced that a major investor had sold its stake in the company.
Across the tech landscape, from New York to San Francisco to Gurgaon, India, some high-flying startups that enjoyed a swift rise are now having a reality check. Businesses seemed poised to dominate thanks to having raised eye-popping sums — until they weren’t. And their biggest checks often came from the same source: SoftBank, a Japanese conglomerate with an unprecedented war chest of nearly $100 billion.
But, a number of these SoftBank-backed startups, including OYO, Wag and Fair.com, have undergone layoffs as of late. In total, more than 7,300 people have lost their jobs across 12 privately-held SoftBank-backed companies in the past four months, according to a CNN Business tally based on company sources, media reports, and company filings. Those impacted include people who worked in engineering, marketing, human resources and mergers and acquisitions, among other departments.
For two years, the tech world was upended by SoftBank’s Vision Fund, which looked to pump $93 billion into tech companies — and quickly. Companies working on services such as coworking, vertical farming and pizza-making robots raised hundreds of millions, or even billions, of dollars. The recipients went on hiring sprees, acquired other startups and expanded at a breakneck pace. Startup valuations, already criticized for being lofty in the years leading up to the fund’s launch, soared ever higher.
Then, just as suddenly, Wall Street signaled it had reached its limit for tolerating wildly unprofitable businesses. Uber (UBER) was pummeled by investors after going public. WeWork tried and failed to IPO. The effects reverberated across the industry. And SoftBank (SFTBF), which put billions into Uber (UBER), WeWork and many other startups, has also been humbled.
CNN’s tally does not include the roughly 1,000 WeWork building maintenance staffers who were given the option to work for a third-party outsourcing company when they lost their jobs. It also does not encompass the more than 1,100 people laid off from Uber this fall, months after the company went public. The ride-hail company was one of SoftBank’s biggest bets, having received more than $7 billion in funding.
“With the change in market sentiment, businesses are facing pressure to reach profitability faster,” a SoftBank Vision Fund spokesperson said in a statement to CNN Business. “A number of our portfolio companies have acted quickly and responsibly to make some difficult decisions to better position themselves for long-term success. We expect – and are already seeing – that other companies will also adapt.”
CNN Business spoke with nine of those laid off across various SoftBank-backed companies all of whom spoke on condition of anonymity citing either non-disclosure agreements or fear of retribution. Those people range from VP-level hires to entry-level staffers who thought they were boarding a rocket ship only to be back on the job hunt.
Details of the ongoing upheaval vary from company to company. Wag had struggled to keep up with the competition and endured some layoffs – according to a previous CNN Business investigation – even before SoftBank sold its stake in the company. Wag declined to comment for this story. In an email at the time of the latest layoffs, Wag’s CEO told staffers the company was “amicably parting ways” with SoftBank and said job cuts were an “extremely painful and difficult step” but an “important one for our future.” Brandless, a retail startup that shut down this month, also signaled trouble when it swapped its CEO earlier this year. In a statement about its closure, Brandless’ CEO said, “I’m proud of what we created at Brandless and the hard work and dedication of everyone on the team … I’m confident the next great brands of tomorrow will be built from this experience.”
A number of the companies are touting a focus on profitability as they undergo layoffs and restructurings.
For some, the shift felt stunningly quick.
Compass held a “recruiter appreciation” event on the 11th floor of its New York headquarters to praise employees and look forward to the year ahead, one former employee said, noting that some leadership was present. Just a couple weeks later, Compass laid off more than a dozen recruiters amid staff cuts, the person said. About 40 people across various teams lost their jobs. Compass declined to comment but the company’s chief business officer Rob Lehman said at the time, “we are continuing to invest and grow at the same rate we always have, and we expect to increase our headcount every month this year.”
Employees inside OYO couldn’t help but notice how rapidly headcount was growing last year. New hires were joining twice a week, on Mondays and Thursdays, and some people would scratch their heads wondering who they all were. A former OYO recruiter told CNN Business they joined because “it was a company everyone was talking about.”
But in November, OYO implemented a hiring freeze, two former recruiters at OYO told CNN Business. Both said the freeze was expected to be lifted in mid-January. OYO has since cut at least 3,300 staffers globally. An OYO spokesperson said the company currently has 25,000 people working at OYO. In an interview, OYO CEO Ritesh Agarwal told CNN Business that, “the market has clear feedback for high growth companies that a path to profitability is extremely valuable and we fully acknowledge that.”
In a statement, an OYO spokesperson said, “the company is steered by its management and there is no pressure from anyone. There is a continuous dialogue that happens with all our investors and the board … the rightsizing exercise was important at this point in OYO’s journey and was a decision taken by the leadership team in the company.”
The correction is reminiscent of the tech bubble bursting in 2000 – where hundreds of thousands of tech workers lost their jobs and trillions of dollars in market value for tech companies was lost – though on a smaller scale. But where the 2000 tech crash centered around publicly-traded businesses, this one primarily involves privately-held companies. As a result, the collateral damage is felt most acutely by the startup workers caught in the crosshairs.
The startup reckoning
Shock and frustration are common feelings among startup employees now left in the lurch.
At Zume, the San Francisco-based startup best known for its pizza robots, a red flag went up in mid-December when some 2020 planning meetings were canceled. “All of a sudden, I couldn’t get answers,” a former senior employee told CNN Business. Weeks later, Zume laid off hundreds of workers and closed its pizza-making and delivery operations to focus on innovating around food packaging.
The former senior employee said the sentiment among employees about the layoffs is that it “got screwed by SoftBank” because it did not invest more money in the startup.
By writing such large checks to companies with such short track records, Softbank created an aura of kingmaker. Some employees said they had the impression it was prepared to be there for both the ups and the downs, the former senior employee said.
While Zume’s business had not reached its promise, the former employee said staffers, at least in part, assigned blame for the layoffs to Softbank for not investing more money beyond the $375 million raised in late 2018. “The mood was just sad. We all were building something amazing. It was like, ‘why is this happening?’
Zume declined to comment for this story. SoftBank declined to comment on this.
CNN Business reached out to other SoftBank-backed startups that have undergone layoffs in recent months; several sent or pointed to previously issued statements on layoffs. In those remarks, a few of the other companies similarly defended SoftBank.
There’s arguably been a change in tone out of SoftBank. Just a few years ago, Masayoshi Son, SoftBank’s larger-than-life CEO, reportedly told WeWork’s cofounders that the “crazy guy” wins in a fight over the “smart guy,” and they weren’t thinking “crazy enough.”
Earlier this month, Marcelo Claure, SoftBank’s chief operating officer who was installed as executive chairman of WeWork in late September, said on CNBC that “growth at any costs” has been a “misconception.” He added: “We like accelerated growth. We like companies that can take a lot of market share. And we like companies with a clear path to profitability and cash flow, just like any other investment.” He also said the Vision Fund’s performance so far “is great.”
The results to date tell a different story. SoftBank reported operating losses of $11 billion in the two most recent quarters combined stemming from its tech investments.
“Ill-conceived from the get-go”
While there has been talk for years of a bubble in the private market, industry watchers say SoftBank made it even worse by trying to pump billions into the market, often at high valuations. “There’s no doubt that there’s an excess amount of capital in the private markets and that it has been exacerbated by SoftBank’s Vision Fund,” said Kathleen Smith, principal at Renaissance Capital, which manages IPO-focused exchange-traded funds.
David Erickson, a senior fellow in finance at the University of Pennsylvania’s Wharton School, said the Vision Fund premise was “ill conceived from the get-go.” What was supposed to be the fund’s biggest advantage – its unrivaled size – may also have been its chief flaw. “The size of the fund has really put them in a situation where it almost necessitates they have to make these major bets,” he said. Now, we’re seeing what happens when some big bets fall short.
SoftBank is planning a second Vision Fund, but with some changes from the first. Son, on the most recent earnings call this month, said: “At the moment, I think that our next fund size should be a little bit smaller, because we have caused concerns and anxiety to a lot of people.”
Venky Ganesan, a partner at Menlo Ventures, which invested in some companies SoftBank later funded such as Uber, told CNN Business that while “it’s become really fashionable to go negative on SoftBank and Masa [Son] … the story is far from over.”
But, even if SoftBank can pull off another massive fund, some workers are having second thoughts about how much a big name and a big checkbook can guarantee success.
One of the former OYO recruiters stated a desire to go to an organization that’s been around for a longer time. “I might take a pay cut, but [I’ll] never again go to a startup, or a SoftBank-backed startup.”
CNN Business’ Rishi Iyengar contributed to this report.