Edtech’s brightest struggle to pass TechCrunch
Welcome to Startups Weekly, a nuanced take on this week’s startup news and trends from Senior Reporter and co-host of Equity Natacha Mascarenhas. To get it delivered to your inbox, subscribe here.
Outschool laid off a quarter of the staff, or 43 people, earlier this week, according to an email obtained by TechCrunch. The edtech company, last valued at $3 billion, confirmed the layoffs via email, citing a focus on core capabilities as “growth has returned to earth”.
The email sent to the staff was even more direct. “The truth is that layoffs in our industry are prevalent for a reason,” Amir Nathoo, co-founder of edtech unicorn Outschool, wrote in an email to staff. “The financing atmosphere has been significantly affected by anticipation of a recession, higher interest rates and an increased 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 contractor had to lead Outschool through its first round of layoffs, which affected 18% of staff. The entrepreneur’s comments underscore how struggling some of the boldest and best-capitalized companies in edtech are. For example, Outschool’s double round of layoffs comes after it raised a Series B, C and D in 12 months and increased its valuation from $1 billion to $3 billion in an even shorter period.
As part of this week’s layoff, Outschool co-founder and chief product officer Nick Grandy is also leaving the company. “I understood that our growth would slow once learners could return to school full time; however, I did not expect our growth to slow as dramatically as it has,” Nathoo wrote in the email. “It’s on me and I sincerely apologize.”
In the last quarter of 2022, edtech layoffs affected venture capital-backed companies including BloomTech, Vedantu, Teachmint, Reforge, Coursera, Unacademy, Byju’s, Udacity and Brainly. Leadership changes include the resignation of the CEO of Quizlet, the removal of the CEO of Degreed for the return of the founder, and the departure of the co-founder of Invact Metaversity after irreconcilable differences with his co-founder.
Class, an edtech company that approached 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 known venture capital funding to date, including a SoftBank Vision Fund II check. CEO and Founder Michael Chasen did not respond to a request for comment.
The BloomTech coding boot camp, formerly known as Lambda School, cut its staff in half last week, in its third known round of layoffs since the pandemic began. Unlike Outschool and Class, BloomTech hasn’t been on a quick fundraising spree throughout the pandemic. Instead, the reasoning for the layoffs appears to be a bit more ambiguous – CEO Austen Allred only explaining the decision by saying “we had to cut costs to become profitable”.
We now know that the startups that enjoyed a pandemic-era boom the most are now the same startups facing tough questions about how to navigate a not-so-imminent downturn. But edtech is a sector that has reached an entirely different stratosphere in 2020 and 2021, as demand for distance learning has exploded. As demand grew, so did investor appetite. The same venture rounds that allowed companies to broaden their idea of what a total addressable market might look like are the same slices that may have forced a frenzy of overspending and overhiring that now requires correction. .
Unlike a sector like crypto, which has had a similar bull run and is now managing its own winter, the edtech explosion has touched on purely human, not technical, needs. In Outschool’s case, it’s now pivoting to focus more on ending its platform’s tutoring to combat learning loss resulting from COVID-19.
It’s safe to say that the industry is moving from a disruptive mood to a maintenance mode.
But let’s stop our research on edtech and move on to some other tech happenings this week. You can find me on 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.
Airtable 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 staff and, well, Airtable too. This comes after a long series of layoffs in the fintech space, not limited but including Chime, Stripe and Opendoor.
Here’s why it’s important: Both of these startups were hiring and were touted as a place for laid-off talent to apply just two weeks ago. All that to say, there are so many lashes out there for job seekers, especially laid-off ones, to “trust” around for their next gig.
I wonder why these terminally ill companies waited so long to make layoffs, or if they really thought they would be able to weather this downturn on high expense. What changed for them to finally pull the plug? Note that Airtable’s layoff appears to be particularly drastic – as its chief product officer, chief human resources officer and chief revenue officer also part ways with the company as it pivots to focus more on the side business of its activity.
All your AI avatars
My new flex is that I don’t have an AI avatar, and I’m only a little worried about that! Kidding aside, if you’ve been on Twitter for the past few weeks, you’ve probably seen some pretty stylish and imaginative algorithm-generated portraits of your friends (and foes).
The company behind these magical avatars is Lensa AI, which has unsurprisingly soared in the App Store. It’s damn cool. Yes, I’m tempted. But, not to rain on your new Twitter photos, there are already questions about how it is used and its impact on artists.
Here’s why it matters through my colleague, Hatter Taylor:
While the tech world celebrated advancements in AI image and text generators this year — and artists watched the proceedings with caution — your average Instagram user probably didn’t start a philosophical conversation with ChatGPT or fed nonsensical DALL-E prompts. It also means that most people haven’t grappled with the ethical implications of free and readily available AI tools like Stable Diffusion and how they’re about to change entire industries – if we let them.
I strongly urge you to read Hatmaker’s article 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 creation.
[Insert good news here]
It’s officially that time of year, and part of the news cycle, where I’m desperate for good news to highlight. Without further ado, here’s what made me smile this week:
A few comments
Seen on TechCrunch
Amazon will give your overworked delivery driver $5 if you ask Alexa to thank you
Instant grocery app Getir buys competitor Gorillas
Theranos executive Sunny Balwani sentenced to 13 years in prison for defrauding patients and investors
Slack’s new CEO Lidiane Jones brings two decades of product experience to work
Seen on TechCrunch+
As Butterfield leaves the stage left, it’s fair to wonder what’s going on at Salesforce
The era of constant innovation at Amazon may be over
Getaround braves the cold public markets with the SPAC suit
How to respond when a VC asks for the valuation of your startup
Don’t worry: Down rounds are still rare by historical standards
If you’ve made it this far, congratulations and thank you. I’d say pass it on to a friend, tell me what you think on Twitter or follow my personal blog for more emotional content – but also, I’m just glad you’re here and still care so close to the holidays.
Take care and stay warm,