Technology startups have been laying off tens of thousands of workers to cope with the economic fallout of the coronavirus pandemic, potentially blunting a key innovation pipeline for the enterprise information-technology market, according to industry analysts.
“Startups are a great source of innovation in the IT industry, but are now especially cash-constrained,” said Max Azaham, a senior research director at research and consulting firm Gartner Inc.
Mr. Azaham said the coronavirus has made startup investors far more risk-averse, resulting in a sharp downturn in investment capital for IT companies looking to raise less than $100 million.
As of last week, nearly 70,000 tech-startup employees world-wide had lost jobs since March, led by ventures in the transportation, financial, and travel sectors, according to a report by U.K.-based brokerage BuyShares.co.uk.
Startups in the San Francisco region, including Silicon Valley, have shed more than 25,500 jobs, including layoffs at high-profile companies such as Uber Technologies Inc., Groupon Inc., and Airbnb Inc., the report said.
Uber in May announced more than 6,500 layoffs, cutting roughly a quarter of its workforce. A month earlier, Lyft Inc. said it would cut about 17% of its workforce, furlough workers, and slash pay in cost-cutting efforts to cope with lost sales during the coronavirus pandemic.
Startups developing artificial intelligence and other emerging digital tools fall under the category of tech-sector employers, which have cut jobs for four consecutive months, said Tim Herbert, executive vice president for research and market intelligence at IT industry trade group CompTIA.
The cuts included a record 112,000 layoffs in April, as tech companies scrambled to slash costs, according to CompTIA’s analysis of federal employment data. By contrast, employers outside the tech sector have picked up the pace of IT hiring in recent months.
Startups this year have been cutting costs to make up for a loss of outside funding.
Global private-market funding for startups dropped to $67 billion in the first quarter, down 22% from the same period a year earlier, according to CB Insights, a market intelligence company.
Making matters worse, most venture-backed startups in the U.S. are largely unable to tap federal emergency funds under the Payroll Protection Program due to a rule that counts their venture-capital backers as affiliated businesses.
According to a May study by the Washington Technology Business Association, an industry trade group, fewer than 40% of 140 tech startups in the greater Seattle metropolitan area had received funding under the program, while many relied on unemployment insurance to pay bills. Roughly 25% had furloughed or laid-off workers, the group said.
Layoffs at tech startups could spell trouble for companies across the economy seeking innovative digital tools to weather the coronavirus crisis and compete in a post-COVID market.
Startups and other small tech firms have for years been a major source of emerging technology and skilled workers for larger companies, according to Jonathan Simnett, director of technology-advisory firm Hampleton Partners. Additionally, big corporations often consider startup acquisitions as a form of research and development for IT departments, he said.
“The Covid-19 crisis has accelerated the need for innovation across many parts of the economy,” Mr. Simnett said, citing areas such as collaboration and remote working, e-commerce, and IT services.
Employers added an estimated 227,000 jobs in the IT-sphere in June, according to a new analysis of Labor Department data, indicating a possible bright spot for tech workers amid the nation's dire unemployment situation.
The nonprofit tech industry trade group CompTIA said in an analysis Tuesday that while overall tech industry employment declined by some 5,600 jobs in June, IT jobs across all sectors increased by an estimated 227,000 positions last month.
The researchers also noted the trend that tech sector occupation employment increased five out of six months in the first half of 2020. Meanwhile, the unemployment rate for all IT occupations was 4.3% for June, researchers said, compared to the national rate of 11.1%.
"The latest employment data for tech was generally positive, with continuing signs of momentum," Tim Herbert, the executive vice president for research and market intelligence at CompTIA, said in a statement.
"While uncertainty is still a major concern, the forward-looking employer job posting figures suggest hiring will accelerate in areas such as software development, IT support, cloud infrastructure, cybersecurity, and certain emerging tech fields," he added. Some of the most notable job gains in the tech industry last month occurred in tech manufacturing, which saw a net increase of 7,300 jobs. Data processing, hosting, and related services saw an increase of 5,600 jobs and other information service categories -- which includes search engines and portals -- saw an increase of 2,000 jobs last month, according to the analysis.
IT services and custom software development saw a loss of 20,400 positions last month, with Herbert noting that this could be because the sector "is dominated by small firms" that "tend to be more sensitive to disruption in customer spending."
"As the broad small business market recovers, we expect hiring will resume among IT services and custom software development firms," Herbert said.
Finally, the researchers noted some forward-looking indicators of demand for tech talent -- saying that there were approximately 263,000 job postings in June, an increase of 42,000 postings compared to the previous month. The most in-demand tech occupations include software and application developers (with 82,800 job postings) and IT support specialists (22,000 job postings).