The apocalypse for startups begins

Layoffs, down rounds, fear: For startups, the toughest time in a decade is just beginning. But not everything about it is bad.

The first impacts are coming down on the startup scene like meteors. In the beginning, they were still small lumps when the first start-ups closed their offices or then quietly canceled their expansion. But since today at the latest, it has become clear that an apocalypse is just beginning, the likes of which startups have not seen in over a decade. One thing is already clear: it's going to be intense.

Gorillas is parting with hundreds of employees, which is tantamount to a clear cut, and on the same day it becomes clear: Europe's most valuable fintech, Klarna, must also cut hundreds of jobs. Ten percent of all employees may fill their boxes with belongings and have to leave. The start-up scene hasn't seen anything like this in years, it was always uphill, now comes the abrupt crash, the hangover after the party.

Start-ups must prepare for hard times

When even the growth giants, with their billion-dollar valuations behind them, have to make radical cuts: How badly will startups soon fare that have recently stumbled more than scaled, that have reached a plateau, or that may have just suffered their first major setback? Startups need to brace for tough times - but there's some upside to all of this.

According to the news channel CNBC, the company itself describes one of the most important reasons for the mass layoffs at Klarna: ""When we drew up our business plans for 2022 last fall, it was a very different world than the one we find ourselves in today," they said. The reasons the U.S. news channel cites founder Sebastian Siemiatkowski with: War, a shift in consumer sentiment, a steep rise in inflation, a very volatile stock market and a likely recession. Everything is now coming together in what could be a perfect storm that is likely to sweep across the German start-up country with heavy damage.

Panic is the order of the day for start-ups

Already a few days ago, the portal FinanzSzene.de reported about Raisin DS, actually always one of the big fintechs in Germany. It even reached Unicorn status after merging with its worst competitor. But according to the report, that's over. Because in view of the current situation, the first investor has already devalued his share - and thus stolen the Unicorn status from Raisin DS. Similar down rounds or downgrades are likely to occur for many start-ups in the future. There has also been speculation about a possible downgrade of Klarna. The steep estimate: the start-up could lose up to a third of its value. That's enough to cause panic.

Figures already underline the horror. According to evaluations by Capital and Dealmonitor, the amount of financing alone has plummeted by 50 percent - and that in just one quarter. Whereas in the fourth quarter of 2021, investors were still putting 6.5 billion euros into German startups, in the first quarter of this year, according to the figures, it was only 3.2 billion euros. The flood of money that startups have been able and allowed to struggle with in recent years is likely to become just a small stream, at whose cool financing waters the herd of unicorns, zebras and other species of animals from the startup world will meet.

N26, Klarna & Co: Are the Unicorns overvalued?

In an interview with Startbase , Hamburg-based entrepreneur and investor Fabian J. Fischer already outlines what is currently happening in the market: "We are currently seeing liquidity being pulled out of the market," says the head of digital consultancy Etribes. "Both shareholders of start-ups and potential new investors are currently holding back. Investors who currently hold shares in very highly valued companies are trying to sell them on, and even that is currently only possible at a considerable loss." Many start-ups that are currently highly valued are therefore likely to be worth less soon. N26, for example, is overvalued for Fischer, and many other start-ups will also have to ask themselves: are they still worth the valuation they were worth yesterday? Those who shake their heads at this question should know what that means.

The crisis could be an opportunity

In the long run, all of this is likely to have a significant impact on the scene. Consultant Fischer says aptly about the next few weeks: a lot of stupid money will disappear from the market, he tells Startbase, emphasizing that hard key figures are likely to become more important again. That would then in turn have a positive effect.

It was not uncommon for valuations to be perceived as increasingly astronomical in recent months and years, with more than a unicorn valuation seeming completely excessive. If investors are now running out of money, this will make selection more difficult. Instead of investors fighting for startups, startups may soon have to fight for investors again. Pull out your pitch decks.