Tech Layoffs Are Feeding a New Startup Surge

Hundreds of thousands of workers lost jobs at Google, Meta, and other giants in recent months. Some are deciding to build their own companies.
Pawn chess piece with king chess piece shadow
Photograph: Jordan Lye/Getty Images

Henry Kirk always thought he would eventually leave his job as an engineering manager at Google and start his own company. But when he became one of the 12,000 employees let go by the tech giant in January, he decided his time had come—albeit in an earlier and unexpected fashion.

Kirk and five others laid off from Google are now working on launching their own software design and development studio. He announced his ejection from Google and the new venture in a LinkedIn post that garnered more than 15,000 reactions. Kirk says he’s received a staggering 1,000 messages since making the post from people looking to work with the new agency or simply wishing him well on his attempt to conjure opportunity from a setback.

The team has given themselves until the end of March to pull the vision together, a tight deadline based on severance payouts and how Kirk and his teammates plan to divide their time and money between the company and home lives.

“My back is against the wall because I have to get back on my feet,” Kirk says. But instead of feeling dispirited, he is energized. “I actually am embracing the fact that this happened.” 

Tech companies laid off at least 160,000 workers in 2022, according to Layoffs.fyi, a site that tracks job losses in the industry. The cutting has continued into 2023, with more than 100,000 additional people losing their jobs. In the blink of an eye, the largest and most lucrative tech companies known for high salaries and lavish perks seem like a riskier choice. Kirk is among a cohort of workers trying something new—instead of seeking other positions inside giant companies whose hiring sprees have flipped to a payroll purge, they’re opting to become their own bosses. For many, healthy severance payments provide ample cover to work up their own ideas. And the layoffs give them space to finally work on a passion project.

“I just kind of felt this weird sense of relief,” says Jen Zhu, who was laid off last summer and is working on a health tech startup, Maida AI. “The golden handcuffs are off, and I can do whatever I want now.” 

For investors, a solid startup can prove a better bet than tumbling stocks in harsh economic conditions. They’re agile and have fewer costs. And getting customers to pay for a new product during a recession can send a strong message that the idea has legs. (Airbnb, for one, flourished as it provided cheaper accommodations and extra cash for homeowners during the Great Recession, and its founder is confident it can weather another.) 

Some early indicators suggest a surge of new founders. Startup accelerator Y Combinator saw applications increase by 20 percent in 2022, getting a total of more than 38,000, says Lindsay Amos, a company spokesperson. The number of late applications, or those filed in January 2023, increased fivefold.

Venture capital firms are sitting on a record cash pile to invest in startups after years of low interest rates that inspired investors to search harder for returns. However, new founders may find it harder to tap than those who went before them. A spate of founder scandals at unicorns like WeWork and Theranos have caused investors to dig deeper into a company before throwing money at the latest shiny promise. Market uncertainty only adds to that scrutiny. “They’re being a lot more strategic and a lot more careful,” Julia Austin, a senior lecturer at Harvard Business School, angel investor, and founder of Good For Her, a nonprofit community for female founders, says of investors. “It’s a lot more about market possibility and vision and also execution. One of the biggest things I’m seeing is you can’t raise capital on a slide deck anymore.”

And these new founders are entering a precarious market. Startup valuations have fallen. As interest rates rise and tech stocks languish, venture capitalists are holding tighter to their funds. Seed stage funding slumped 35 percent for startups year over year by late 2022, data from Crunchbase shows. And the recent layoffs are sending more startups to go hunting for those funds.

Although layoffs have been relatively widespread in tech and media companies, the US economy at large remains in good shape. Experts have balked at calling the current financial climate a recession, but historically, bad-times recessions have bred some startups that changed the world. Google launched in 1998, not long before the dotcom crash; Airbnb began in 2007; Slack, WhatsApp, and Square came in 2009. 

Four new founders who spoke with WIRED describe the stresses of developing new skills like pitching and fundraising, which didn’t need to be part of their technical and industry expertise. But most like Kirk also feel energized. For them, layoffs provide a push to pursue an idea that has long lingered. 

But the workload of a new entrepreneur can be unforgiving. Zhu says she is working every day on Maida AI, which automates health care administration tasks like patient intake and note-taking. She says she lost her job last summer when virtual care company Carbon Health let go 250 workers. Zhu briefly took a chief of staff job at another company, but she decided to follow an instinct she had after first losing her job and fully commit to developing her own vision, born from noticing problems in health care delivery as a patient and a person working in the industry.

“It’s a grind,” Zhu says of the transition. “It’s really hard to turn off. There’s always more to do. You’re just so acutely tied to the outcomes and your company moving forward.” Her startup is among seven that each received $100,000 in funding from Day One Ventures, through a program that invited applications from founders who had been laid off. Those seven won out among a pool of 1,200 applicants.  

Even some who weren’t laid off have used the moment to pivot and start something on their own. Nish Junankar, a former software engineer for NFT platform OpenSea and Squarespace, says he quit OpenSea after losing some team members to layoffs. Junankar says he turned down a retention package that included more stock, fearing fewer coworkers would mean longer hours and more work. He decided instead to quit and pursue his idea to start Feasier, a platform that aggregates home furnishing listings from different stores into one place. 

Junankar’s startup has so far relied on funding from friends and family, but he’s been pitching investors. “It’s incredibly stressful,” he says. “The meetings are short, and you have to be very prepared and on point.” Juggling working to improve the product with investor chats has been tricky, but the passion he feels for his project offsets the challenges. “It’s incredibly rewarding and fulfilling. It doesn’t feel like work,” Junankar says. “I just really believe in the idea.” 

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