Unicorns lose attraction for tech talent as start-up bubble fades
Employees are flocking to larger and older technology companies, as the lustre of unicorns fade
San Francisco: When he started thinking about leaving Apple Inc. this year, Darren Haas briefly contemplated Uber Technologies Inc., where many friends worked. Instead, the cloud-computing engineer pursued an opportunity he considered more exciting: General Electric Co.
Excitement and a century-old industrial company don’t usually mix in the minds of Silicon Valley talent. But Haas said hardcore challenges at GE, like keeping planes airborne and nations’ water systems flowing, sold him. Now, he pitches potential hires from late-stage start-ups on those same big projects, along with competitive compensation.
“You’re betting on a lottery ticket,” he said he tells prospects who like the idea of getting stock in a start-up. “There’s lots of ups and downs. GE is stable.” Since he joined in June, he’s recruited several engineers from unicorns—start-ups valued at $1 billion or more—a move he said would have been much harder last year when unicorns were riding high.
The typical trade-off between working at an established public company and a start-up works like this: Young businesses generally can’t pay big salaries, but offer options that could make staff wealthy if everything works out. Older firms typically pay more, but you won’t become a multimillionaire. Fading unicorn lustre tips the scales in favour of steadier employers.
Fifteen months ago, online local search company Yelp Inc. said the “unicorn bubble” was hurting its numbers, including the cost of product development which rose three percentage points to 20%of revenue.
“That’s just a function of compensation in the marketplace,” Geoff Donaker, Yelp’s chief operating officer at the time said on an earnings call. “We’ll do what we can to kind of hold the dam on that whole thing and ride it out.”
In third-quarter results released this month, product-development costs had dropped to 19.5% of revenue. Less-frenetic hiring of engineers by unicorns means Yelp and others don’t have to pay software coders as much to churn out new web services and app updates. Yelp shares have more than doubled since hitting a 2016 low of $15.23 in early February.
The combination of start-up funding and exits surged to a record in June 2015, according to the Bloomberg US Start-ups Barometer, a new weekly index that tracks the business environment for US-based private technology companies. This heady mixture fueled aggressive expansion and recruiting.
Since then, the index has dropped almost 20% as VC firms have become more careful about which businesses they fund. Some start-ups such as Mode Media and SpoonRocket have shut down.
Some unicorns, such as Uber, Airbnb Inc. and Snap Inc., are still thriving. But there are questions about how much further their valuations can increase. That’s made it easier for public companies to recruit job seekers who once might have preferred start-up stock that could double, triple or more in an initial public offering or acquisition.
The tide started turning early this year at Veeva Systems Inc., a life-sciences software company.
“What looked like a phenomenal opportunity at this up-and-coming unicorn doesn’t look as good now as it did maybe 60 days, 90 days ago and we saw that in the hiring,” chief financial officer Timothy Cabral said at a conference in March.
Veeva shares are up 37% so far this year, and have gained 92% since touching a 2016 low on 11 February.
GrubHub Inc., operator of an online food-ordering and delivery service, fell to a record low in January on concern younger start-up rivals like DoorDash Inc., Munchery Inc. and Postmates Inc., would eat its lunch.
It didn’t work out that way though. Instead, those private companies faced growing questions about their business models and struggled to raise money at higher valuations.
“The emperor has no clothes,” GrubHub chief executive officer Matt Maloney said. “Their existence did decrease our value, and that has basically gone away now.”
Sentiment on GrubHub has shifted from “scared-of-unicorns” to recognizing the benefits of the company’s scale, analysts at Canaccord Genuity wrote in a recent note to investors.
That’s helped GrubHub shares almost double from their 2016 low. The stock gave up some of those gains on Friday after Maloney sent an anti-Trump e-mail to employees that was interpreted by some as an attack on democracy.
Unicorn woes are helping other companies win more business. Human-resources start-up Zenefits replaced its CEO and ran afoul of insurance-licensing rules earlier this year. That gave a boost to traditional HR players, Paychex Inc. CEO Martin Mucci said in an interview.
“Do they go with a start-up unicorn?” he said customers ask themselves now. “It sounds exciting, but there’s risk.” Paychex shares are up 22% since hitting a 2016 low on 13 January.
Still, most of the changes are showing up in the market for tech talent. Companies that offer options or restricted stock units to compensate for lower salaries are having a tougher time, said Silicon Valley recruiter Mark Dinan.
“It does me no good to get rich when I’m 45 when I’m 30 now,” goes the thinking of many prospective hires these days, he said. That’s helped him make some hires out of companies that would have been tough to recruit from a year or two ago, including Uber and Airbnb, he said.
Copywriter Drew Hoolhorst left Airbnb earlier this year after “that unicorn feeling wore off.” These days, he works for an agency where he handles projects for Apple. He enjoyed working at the start-up, but he’s not sure it was special or different enough to be likened to a mythical horned beast.
“It’s kind of hard to know which company is the unicorn, and which company is the horse,” he said. Bloomberg
Editor's Picks »
- Flipkart, Hotstar join hands for ad platform
- Hug-hug, wink-wink: Rahul Gandhi attacks govt over Rafale, unemployment, lynchings
- India, US to finally hold twice-postponed ‘2+2 dialogue’ on 6 September
- Collegium maintains stand on elevation of Joseph to SC, sends two more names to govt
- Change M&A norms to calculate spectrum dues: Trai
- What ABB India’s performance in June quarter says about capex growth
- Bajaj Finance does well in Q1 even as competition hots up
- Kotak Mahindra Bank: The perils of being priced to perfection
- Higher cane price crushes hopes of sugar mills
- Market optimism before 2019 general election: History may not repeat itself