The apocalypse for start-ups begins

Layoffs, down rounds, fear: start-ups are currently facing the toughest time in a decade. But not everything is bad.

The first impacts have come crashing down on the start-up scene like meteorites. In the beginning, the first start-ups to close their offices or quietly and secretly cancel their expansion were small chunks. However, since today at the latest, it has become clear that an apocalypse the likes of which start-ups have not seen for over a decade is just beginning. One thing is already clear: it's going to be tough.

Gorillas is shedding hundreds of employees, which is tantamount to a clear cut, and on the same day it becomes clear that Europe's most valuable fintech, Klarna, will also have to cut hundreds of jobs. Ten percent of all employees are allowed to fill their boxes with belongings and have to leave. The start-up scene hasn't seen anything like this for years, it's always been uphill, now it's 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 bad will things soon be for start-ups that have recently stumbled more than scaled, reached a plateau or possibly just suffered their first major setback? Start-ups have to prepare for hard times - but there is something good about it all.

According to the news channel CNBC, the company itself describes one of the most important reasons for the mass layoffs at Klarna: "When we set out our business plans for 2022 last fall, it was a very different world than the one we find ourselves in today," it said. The reasons cited by the US news channel founder Sebastian Siemiatkowski: War, a change in consumer sentiment, a steep rise in inflation, a highly volatile stock market and a probable recession. Everything is now coming together in what could be a perfect storm that is likely to cause severe damage to the German start-up nation.

Panic is the order of the day for start-ups

A few days ago, the portal FinanzSzene.de reported on Raisin DS, which has always been one of the major fintechs in Germany. After the merger with its closest competitor , it even achieved unicorn status. But according to the report, that's all over now. In view of the current situation, the first investor has already devalued its share - and thus stolen Raisin DS' unicorn status. There are likely to be similar down rounds or downgrades for many start-ups in the future. There has also already 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 analyses by Capital and Dealmonitor, the amount of financing alone has plummeted by 50 percent - in just one quarter. While investors were still putting €6.5 billion into German start-ups in the fourth quarter of 2021, the figures for the first quarter of this year show that this figure was just €3.2 billion. The flood of money that start-ups have had to contend with in recent years is likely to become just a small stream, where the herd of unicorns, zebras and other animal species from the start-up world will meet at the cool waters of the financing pool.

N26, Klarna & Co: Are the unicorns overrated?

In an interview with Startbase , Hamburg-based entrepreneur and investor Fabian J. Fischeroutlines what is currently happening on the market: "We are currently seeing liquidity being pulled out of the market," says the head of digital consultancy Etribes. " Both start-up shareholders 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 this is currently only possible with considerable losses." 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 be asked: Are they still worth the valuation they were worth yesterday? Anyone shaking their head at this question will probably know what that means.

The crisis could be an opportunity

In the long term, 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 figures are likely to become more important again. This in turn would have a positive effect.

In recent months and years, valuations have often been perceived as increasingly astronomical; more than a unicorn valuation seemed completely excessive. If investors are now short of money, this will make the selection process more difficult. Instead of investors fighting for start-ups, start-ups may soon have to fight for investors again. Get out your pitch decks.