Welcome to Startups Weekly, a nuanced look at this week’s startup news and trends by Senior Reporter and Equity co-host Natasha Mascarenhas. Subscribe here to receive it in your inbox.
Outschool laid off a quarter of its staff, or 43 people, earlier this week, according to an email obtained by ExamPaper. The edtech company, last valued at $3 billion, confirmed the layoffs via email, citing a focus on core capabilities as “growth has come back down to earth.”
The email sent to staff was even more direct. “The truth is that the layoffs in our industry are widespread for a reason,” Amir Nathoo, the co-founder of edtech unicorn Outschool, wrote in an email to staff. “The funding sphere has been dramatically impacted by the anticipation of a recession, higher interest rates and a greater need to show [return on investment] to investors.”
For employees, Nathoo’s tone is reminiscent of a conversation he had a few months earlier, in July, when the entrepreneur had to guide Outschool through its first round of layoffs, affecting 18% of its workforce. The entrepreneur’s comments underscore how some of edtech’s most daring and well-capitalized companies are struggling. Outschool’s double round of layoffs, for example, comes after it raised series B, C, and D in 12 months and raised its valuation from $1 billion to $3 billion in an even shorter period.
As part of this week’s layoff, Outschool co-founder and head of product Nick Grandy is also leaving the company. “I understood that our growth would slow down once students could return to school full-time; however, I didn’t expect our growth to slow so drastically,” Nathoo wrote in the email. “This is up to me and I want to offer my sincerest apologies.”
In the last quarter of 2022, edtech layoffs have hit venture backed companies, including but not limited to BloomTech, Vedantu, Teachmint, Reforge, Coursera, Unacademy, Byju’s, Udacity, and Brainly. Executive shifts include the resignation of Quizlet’s CEO, the resignation of Degreed’s CEO for the founder’s return, and the departure of Invact Metaversity’s co-founder after irreconcilable differences with his co-founder.
Class, an edtech company approaching unicorn status just 10 months after launching its Zoom School alternative, also made layoffs this year. The company has raised a total of $146 million in venture funding to date, including a SoftBank Vision Fund II check. CEO and founder Michael Chasen did not respond to a request for comment
Programming boot camp BloomTech, formerly known as Lambda School, cut half its workforce last week, in its third known round of layoffs since the pandemic began. Unlike Outschool and Class, BloomTech was not quick to fundraise during the pandemic. Instead, the rationale for layoffs appears to be a bit more ambiguous — with CEO Austen Allred explaining the decision only by saying that “we had to cut costs to become profitable.”
We now know that the startups that enjoyed a boom in the pandemic era the most are now the same startups facing tough questions about how to navigate a not-so-impending downturn. But edtech is an industry that has risen to an entirely different stratosphere in 2020 and 2021, as demand for remote learning skyrocketed. As demand increased, so did investor interest. The same venture capital rounds that allowed companies to expand their idea of what a total addressable market might look like are the same tranches that may have led to an overspending and overrent that now needs to be corrected.
Unlike an industry like crypto, which went through a similar bull run and is now experiencing a winter of its own, the explosion of edtech hit unique human and non-technical needs. In the case of Outschool, it is now about paying more attention to the tutoring part of its platform to combat the learning loss caused by COVID-19.
It is safe to say that the sector is shifting from a disruptive mood to a maintenance mode.
But let’s pause our edtech digs and move on to this week’s other happenings in tech. You can find me at Twitter, Substack and Instagram, where I post more of my words and work. In the rest of this newsletter, we’ll talk about Airtable, Plaid, and all your damn AI avatars.
Air Table and Plaid
We’ll stop talking about layoffs after this section, but there were two cuts this week that really surprised me: Plaid laid off 20% of its staff and, well, Airtable did too. This comes after a long string of layoffs in the fintech space, not limited to but including Chime, Stripe, and Opendoor.
Here’s why this is important: Both startups were hiring just two weeks ago and touted as a place for laid-off talent to apply. All in all, there’s so much lashing out for job seekers, especially those who’ve been laid off, where they can “trust” for their next gig.
I really wonder why these late-stage companies waited so long to make layoffs, or if they really thought they could weather this downturn at a high cost. What changed that made them finally pull the plug? Note that Airtable’s resignation appears to be particularly drastic – as the chief product officer, chief people officer and chief revenue officer are also parting ways with the company as it revolves around focusing more on the business side of its business.
All your AI avatars
My new flex is that I don’t have an AI avatar, and I’m just a little insecure about it! Jokes aside, if you’ve been on tech Twitter at all in the last few weeks, you’ve probably seen some pretty, imaginative, algorithmically generated portraits of your friends (and mortal enemies).
The company behind these magical avatars is Lensa AI, which has unsurprisingly climbed up the app store. It’s damn cool. Yes, I am tempted. But not to rain your new Twitter photos, there are already questions about how it’s being used and its impact on artists.
Here’s why this is important Through my colleague, Taylor Hatmaker:
While the tech world has been celebrating the advances of AI image and text generators this year — and artists have watched the proceedings warily — the average Instagram user probably hasn’t struck up a philosophical conversation with ChatGPT or given DALL-E absurdist directions. That also means most people haven’t wrestled with the ethical implications of free, readily available AI tools like Stable Diffusion and how they’re about to change entire industries – if we let them.
I highly recommend reading Hatmaker’s piece to understand some of Lensa’s red flags, especially if you care about artists being properly credited and paid for their work and, well, the future of the creation.
[Insert good news here]
We’re officially that time of year and part of the news cycle, where I’m desperate for some good news to highlight. Without further ado, here’s what made me smile this week:
A few notes
Seen on ExamPaper
Amazon will give your overworked delivery person $5 if you ask Alexa to say thank you
Instant shopping app Getir takes over competitor Gorillas
Theranos exec Sunny Balwani sentenced to 13 years in prison for defrauding patients and investors
Slack’s new CEO, Lidiane Jones, brings with her two decades of product experience
Seen on ExamPaper+
As Butterfield exits the stage to the left, it’s fair to wonder what’s happening at Salesforce
The era of constant innovation at Amazon may well be over
Getaround braves chilly public markets with SPAC combination
How to respond when a VC asks about your startup’s valuation
Don’t worry: Down rounds are still rare by historical standards
If you made it this far, congratulations and thank you. I would tell you to forward to a friend, tell me what you think on Twitter or follow my personal blog for more emotional content – but I’m also just glad you’re here and still care so close to the holidays.
Be careful and keep warm,