After decades of growth, the tech sector is now under pressure. Big and small companies alike are under pressure thanks to rising interest rates, the war in Ukraine, potential COVID-19 lockdowns abroad, and much more. The sector also just enjoyed a blockbuster two-year growth period during the pandemic, with startups like Peloton catering to at-home  needs. That lucky streak seems to be coming to an end. Mark Peter Davis, Managing Partner at Interplay, joins Closing bell to discuss why these layoffs were expected, the impact of macroeconomic factors on the tech sector, where tech startups go from here, and more. 

Closing Bell

Layoffs Plague Tech Startups After Years of Growth; Is Boom Over?

Welcome back to closing bell here on cheddar news now, after a booming to pandemic era, years in over a decade of growth and tech sector is slowing down last month, roughly, 17,000 workers worldwide got laid off from 71 tech startups. That's the highest number since the early panic of the pandemic In May 2020. So where does the sector go from here joining us now? Is Mark Peter Davis, managing partner at Interplay and investment and incubation firm. So, Mark, what in the world is going on? I think this is kind of to be expected From a macro perspective. The economy was in 7th gear for quite a number of years, better part of the last decade. And with the government essentially raising interest rates sucking capital of the economy, we're down, shifting to something more like Fifth gear now. So the impact of this for the startups out there is going to mean they have less access to capital and they're also going to anticipate lower revenue growth rates. So the operations they had when they were planning to raise more capital, grow at any cost and essentially scale up in the coming years, those operations don't make the same amount of sense as they used to. So they are right sizing these companies to adjust to the market. Now, most of these layoffs happened at startups are the markets they're trying to disrupt oversaturated, you think, No, I don't think this has anything to do with the underlying business opportunities of the companies where the markets are in startups tend to be pretty agile and recalibrating to market moves. I think we're gonna see layoffs more broadly through the economy as a lot of companies are recalibrating to the new paradigm where we've got lower, higher interest rates, There's gonna be slower growth, There's gonna be a number of things that come with this as we potentially turn into a recession. So I think overall this is a rational rightsizing to the change in the market. I do want to point out, I think this is very different than what we experienced experienced in the global financial crisis. If the parallel here is this is shifting from 7th gear down to 5th. The global financial crisis was akin to piston exploding in the engine. No one knew of the economic model would work the same way where we continue to function. That is not what's happening here. It feels very much like we are very structurally slowing down in a controlled way manifested by government decisions. Let's move away from startups. So tech giants like facebook parent company, metal also freezing hiring. So what does it say when even the sector's biggest players are facing these difficulties? Yeah, I think they're really facing a similar version of the same, a different version. The same story where the startup companies know that there'll be less venture capital available in a slowdown market. The public companies also know this, their evaluations are coming down, they're not able to sell stock at the same price net result is they're going to have less access to capital and are buttoning up the organization essentially to manage for slower growth in a smaller business. I think some of these organizations have different prospects long term than others. The the separation between those that do well coming out of this recession and those that don't are really going to be a reflection of those with good underlying business models. Companies like google amazon apple Microsoft, I think they are in a great position. I'm gonna continue to scale after this now. Was pandemic air explosive growth, a lucky catalyst for these companies. Would they be in a different spot? Had the pandemic not happened? Yeah, there was something called counter Covid that a lot of the tech community was talking about businesses that actually thrived when people were in lockdown, right? They were forced to shop more online. We saw spike in e commerce. A lot of internet businesses basically got a little bump from this. In addition to that, there was stimulus package going on. People had more money to spend that was driving up revenues for folks. So I do think there was a pandemic era financial distortion, but I do not think it is a reflection of an underlying problem in the businesses or fundamental issue long term for the companies. I think we're seeing just a little bit of a reconciliation gravity has re entered the markets and things are returning to a more normal and sustainable level. All right, well, there you have it appreciate it. So, Mark, Mark Peter Davis. We appreciate your time managing partner at Interplay. Thank you for your perspective and your expertise on this subject.