Dismissals from gorillas show: The startup mood has changed radically

Spending between $ 60 million and $ 90 million a month quickly drains your account.

Until recently, the German flash delivery company Gorillas was the fastest growing company in Europe. Over the course of a year, the startup, founded during the corona crisis, grew to more than ten thousand employees delivering groceries home across Europe. The business model: Spend extremely much money, growth as fast as possible and try to push the competitors out of the market. Making money was deliberately not the intention.

Eight months ago, Gorillas raised $ 1 billion (940 million euros) in new capital from investors to pay for the growth plans. Currently, according to sources from tech websites Techcrunch and Sifted, the company still has about $ 300 million of that money in the bank. The rest has been spent on new distribution centers, even more employees and on closing the budget gaps.

For a fast-growing company like Gorillas, it is normal to raise money every year from investors who, until recently, stood in line for Gorillas. All based on the belief that Gorillas will one day be the only remaining flash-spreader, make real money and empty millions.

But times have changed. This week, investors called Gorilla’s CEO Kagan Sümer to order. If he wanted money again, Sümer was told, he had to quickly reduce costs. Therefore, this week, for the first time, Gorillas decided to lay off staff and withdraw from the most loss-making countries: Belgium, Denmark, Italy and Spain. And there was a new voice from the company: Gorillas want to get rid of “hypergrowth” and look for “a path to profitability”.

Also read an interview with Getir founder Nazim Salur from 2021: You think it’s a lot to burn millions a week. Not me’

“Hundreds of billions have been pumped into the economy in the last two years,” Gorilla CEO Sümer wrote to his staff on Tuesday. “Everyone was a winner, everyone had access to money, and all companies had high valuations. But since two months, everything has changed. Technology companies, especially those that make little or no profit, are facing a huge headwind. “

The gorillas story fits into the new reality that start-ups have found themselves in, say Dutch investors Eva de Mol (CapitalT), Manfred Krikke (HPE Growth) and Quintin Schevernels (QSentie Ventures). NRC spoken the last few days. The time of growth above all else, burning as much money as possible and exorbitant valuations for companies that barely make money is over.

Abundance of money

Due to the extremely low interest rates, relatively safe investments, such as bonds, have yielded little or no returns in recent years. Investors have therefore flocked to the venture capital market, a high-risk, high-return investment. By 2021, according to data company Crunchbase, $ 643 billion (more than 600 billion euros) will be invested worldwide in start-ups. A doubling compared to the previous year.

A large portion of this money is in funds that invest part of their capital in young tech companies in exchange for a few percent of the shares. A high-risk model where one hit outweighs the losses on the other failed investments.

Due to the abundance of money in the market, coveted start-ups have been selling their skins expensively in recent years. They got tens of thousands or hundreds of millions in exchange for only a few percent of the shares. This has caused startup ratings to skyrocket, especially in the United States. Also from companies like Gorillas that were worth more than a billion dollars within six months of establishment. Investors come from a time when “everything you touched became more valuable,” as Manfred Krikke of Amsterdam investor HPE Growth describes it.

This mood has changed radically in recent weeks. It has all sorts of reasons. There are rising interest rates, making money more expensive and making safer investments more attractive again. High inflation and war in Ukraine are causing economic uncertainty and falling stock prices, which is particularly hard for technology stocks. The mutual funds, which also trade heavily in tech stocks, suddenly see start-ups as a very risky part of their portfolio.

Large tech investors such as Tiger Global and Softbank are currently losing billions in the stock market and are therefore reluctant to make new investment rounds. If the major parties stop trading, it will affect all investors, Quintin Schevernels explains. “If football clubs like Paris Saint Germain and Manchester City suddenly pay lower transfer fees, you will notice it all over Europe.”

The trend is reversing

Investors turn their attention to those companies that make profits or have a sound business model that can quickly become profitable. “In the last few years, investors have only been looking at growth,” said Krikke of HPE Growth. “A company that grew was worth more than a company that made a profit. That trend is now reversing.”

This means that there may be a separation among young tech companies where only those companies with sound business models survive. If start-ups do not want to go down, they need to cut costs significantly, save money, quickly become profitable and lay off staff. This partly explains the firing round at Gorillas – and also at competing flash delivery companies Getir, Flink and Zapp, where people also leave. The question now is whether and how these companies will survive.

It is a difficult time for start-ups. The US startup training program Y-Combinator, which spawned famous companies such as Airbnb and Dropbox, sent an email earlier this month with ten tips to all start-ups that have reviewed the program. “It does not look good, so prepare for the worst,” the organization wrote. Y-Combinator advised all start-ups to “grab money now if possible” and above all save as much cost as possible. “Try to survive, because many of your competitors will not make it.”

How bad is this really? Maybe it was time for things to get more normal, say De Mol, Krikke and Schevernels. The excesses go out and the relationship slowly returns. “It was hysterical, too,” says De Mol of CapitalT. “Sometimes we got a pitch from a startup on Thursday and we were expected to transfer the millions on Friday. None of this leads to the best decisions. “

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