This Time Is Different

The slump that startups thought would never happen has arrived

- Lizette Chapman, with Sarah McBride

Bilal Zuberi has spent the past few weeks sharing an unsettling message with the founders of companies he's invested in. Startups need to begin slashing costs, which will almost invariably mean job cuts, says the partner at venture capital firm Lux Capital.

"The world is falling apart," he says, "and we need to act accordingly." Unlike the 46-year-old Zuberi, many of the people he's bringing this message to have never gone through a significant contraction in the tech industry. When he told the chief executive officer of a company with hundreds of employees that it was no longer worth the billion-dollar-plus valuation it held in its most recent fundraising round, Zuberi says, the founder reacted with "confusion, fear, and denial." The CEO had heard other predictions in recent years that dire times were descending, yet things never actually got that bad. Zuberi declined to name the founder or the company, because the conversation was private.

During the astonishing decade-plus bull market fueled by the ascendancy of the tech industry, there have been periodic warnings that the good times were ending. In a widely circulated essay from two years ago, "Coronavirus: The Black Swan of 2020," the venture capital firm Sequoia Capital warned startups to question every aspect of their business, including their staffing levels and whether they’d have sustained access to capital. “Nobody ever regrets making fast and decisive adjustments to changing circumstances,” it counseled.

Yet after an initial panic that spring, many tech companies thrived in the pandemic era, when low-interest rates, soaring markets, and changing consumer behavior outweighed any disruptions caused by Covid-19. Zuberi says this false alarm made it harder this spring for startup founders to accept the seriousness of the current situation.