Peter Pan... Too Soon to Moon

July 7, 2022

A commotion!

At least apparently...

Layoffs promoted by startups powered by high-profile fund-raising rounds dominated the news these past few months. Curiously, with certain wistful or outraged tone on the side of journalists and onlookers at large.

On the one hand, all impacts of the great renunciation on the global war for talents, giving new meaning to relationships, bonds and models in the work environment. On the other hand, the popular outrage against layoffs promoted exactly by the heroes of the digital world.

A reflection about the controversy is in order...

The fantastic narrative behind the enterprising trajectory in search of unicorns has transformed many paradigms in the business and financial world. From the professional aspirations of young talents on university campuses, to the value assessment models implemented by investors and creditors. New terminologies – such as, for instance, moon shot, growth hacking, cash burning, LTV/CAC, bootstrapping, agile coaching – spread everywhere, being incorporated into the colloquial language at corporate desks.

Startups were incubated and accelerated by dozens of financial mechanisms in the race against time in search for relevance, network effects and ecosystems. Billions of dollars were invested throughout the world in several promising wagers. But the reality of the numbers always wins over time. Following several bountiful years, depressions; after turmoil, hangover; after euphoria, landings. It was no different this time.

In the face of losses, bankruptcies and negative quotas, the positive fund-raising and assessment spiral suffered a string setback. The global liquidity was wiped out; skepticism dominated the once excited tables in New York, San Francisco, London, Berlin and São Paulo; investors became more conservative in their investments. Those who were in line for new emissions were frustrated. Those who were burning fuel with all growth energy, slowed down. Those with weaknesses in the commercial feasibility of their solutions, found dead ends for the charming "pivots".

Simple as that. More difficulties for the aggressive economic models dependent on serious fund-raising to fund a cash-intensive growth trajectory. All of a sudden, it did not appear to be so attractive to be a tech with depreciated stock options.

Nothing more reasonable than to categorize expenses in the search for balance in the burning of the cash raised on previous rounds. Nothing more understandable than to seek improvements in the operational and financial indicators, already with an eye on a future round. Nothing more expected than to carry out layoffs to adjust personnel costs for all of those who do not suffer from Peter Pan syndrome.

Upon questioning the layoffs at startups, the critics implicitly suggest a value judgment of the incongruence between such layoffs and the multi-million fund-raising process. It is a myopic and naïve analysis... One thing is one thing; another thing is another thing. In the logics of acceleration of startups and scales, the successive fund-raising rounds replace operating revenues on trajectories that spend a lot on investments in technology, brand relevance and community building. Upon interrupting their fund-raising rounds, such young companies’ operations are quickly strangled, and they need to cut down costs and expenses urgently.

By disapproving those layoffs, it seems there is certain conservative and paternalistic tone: should startups burn up all their cash maintaining teams with a financial unbalance incapable of being remedied by new fund-raising rounds? The great renunciation of talents presents itself as empowerment, while the high-tech layoffs are deemed unfair.... Neither too much, neither too little... Hiring and laying off are part of companies’ normal cycle, no value judgment.

Bubbles burst to remind us of good and old fundamentals. In this case, two stand out. The first – CASH IS KING – strengthens what everyone should know since alphabetization: revenue is vanity, profit is sanity, but only cashflow is reality. The second – NO FREE LUNCH – highlights that behind great possibilities of return there also are very significant risks (in this case both to investors, as to entrepreneurs and associates).

Where did Tinker Bell go?!?


Daniel Augusto Motta é Managing Partner e CEO da BMI Blue Management Institute. Doutor em Economia pela USP, Mestre em Economia pela FGV-EAESP e Bacharel em Economia pela USP. É Alumni OPM Harvard Business School. Atua também como Managing Partner da corporate venture capital WhiteFox sediada em San Francisco (EUA), como Senior Tupinambá Maverick na content tech Bossa.etc e com Membro do Conselho de Administração da Afferolab. Também atua como Diretor de Planejamento Estratégico da UNIBES e Membro do Conselho Deliberativo do MASP. Foi Membro-Fundador da Sociedade Brasileira de Finanças. Foi Professor nos MBAs da Fundação Dom Cabral, Insper, FGV, ESPM e PUC-SP. É autor de diversos artigos publicados por Valor Econômico, EXAME, VocêSA e Folha de São Paulo, e também tem três artigos publicados pela Harvard Business Review Brasil. É autor dos livros best-sellers A Liderança Essencial, Anthesis e Data Insights.