Apr 20, 2020 - Economy & Business

Carta coronavirus layoffs reflect slow startup formation

Dan Primack, author of Pro Rata

Illustration: Aïda Amer/Axios

New startup formation has slowed significantly, with fading hopes for a late 2020 rebound.

Driving the news: Carta, a startup that manages employee equity for other startups (including Axios), last week laid off 161 employees, or around 16% of its staff. The basic takeaway was tempered expectations for the number of potential new customers to sign and service.

Carta arguably is an index for startups, which makes these layoffs a major indicator.

  • Yes, many of today’s most iconic tech companies were born from the ashes of past economic crises, but this one might be different.
  • No more serendipitous meetings at parties, no more sitting down with a friend to change the world on the back of a napkin.
  • Even if you and a possible co-founder are tight, and you can get past the daunting idea of all-remote hiring, you’re in unchartered waters when it comes to customer demand and supply chain stability.
  • Even if you want to build, can you?

To its credit, Carta is treating laid-off employees about as well as a company can. They all get three months of severance and COBRA coverage through year-end. Carta also removed the one-year vesting cliff for those hired within the past 12 months, and already had a generous post-termination exercise period.

But there were still a lot of ex-employee grumbles, based on a subsequent Bloomberg report that the company was "seeking to raise" $200 million in new funding at a $3 billion valuation. Plus, it's likely that many former Carta employees were aware that this money would be on top of the $200 million that sources say Carta already had in the bank.

  • The new funding is real, per multiple sources. In fact, it's basically done, co-led by existing investors Lightspeed Venture Partners. The negotiations began prior to the coronavirus outbreak, but terms never changed. The closing was delayed a bit by complications related to some overseas investors.
  • The company hasn’t yet announced the deal, although Tribe Capital did explain its thinking in a lengthy memo sent to LPs over the weekend (which it just posted here).

The bottom line: Carta is building for the future in which it hopes to thrive, while acknowledging lowered expectations for the present. Just like startup-land at large.

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