A wave of shock pulsed through Silicon Valley recently, with some of the largest companies in the world laying off 50,000 employees. The list of companies included Meta, Amazon, Apple, and Google. The process through which this was done was equally shocking. A series of viral clips popped up on TikTok showing the firing decisions. They were seemingly random, sudden, and had no basis in performance. These clips showed employees waking up and immediately losing access to all work-related platforms with only a single text notice from their boss.
What’s more ridiculous about the layoffs, however, was how avoidable the situation in the months before. This event is a consequence of tech giants’ irresponsibility in the form of zero planning and the “spend cash as quickly as possible” herd mentality.
Tech companies funneled funds into cryptocurrency and special-purpose acquisition companies (SPACs) during the Covid-19 bull market. With crypto shrouded by a cloak of hype and short-term interest rates at a record low of under 0.5%, tech companies and venture capitalists with excess cash were eager to dump money into the most absurd cryptocurrencies, such as a photo of a rock selling which sold for $1.3 million. All of this was done for the sake of growth and security — an all-too-familiar story.
The other culprit, SPACs, are shell companies designed to bypass a startup’s IPO process. The system, often blamed for depleting both precious funds and time, makes it necessary for startups to hire swathes of lawyers and bankers for up to a year for the purpose of ensuring that the startup complies with the strict Securities and Exchange Commission (SEC) standards.
The SPAC process, by comparison, was almost too good to be true. By forming a shell company with minimum structure, no business operations, and minimal stated targets for acquisition, SPACs can bypass the sluggish IPO process with minimum funds and time. They first form this shell company, bring it to IPO, then acquire the original private company, thereby making it public. Before the SPAC-startup acquisition can occur, however, they need to gather enough funds for the purchase. These funds were sourced by tech giants like Google and Amazon.
SPACs gathered hype just as its partner-in-crime crypto did, with 613 SPACs in 2021 gathering $162 billion in funds. Using the return on investment from SPACs and crypto, tech giants excessively employed new workers. As expected, many of these workers provided no actual contribution, as evidenced by the swarm of “a day in the life” TikToks of employees at Meta. What made these layoffs surprising was that they were seemingly well-positioned for long-term growth.
What drove this process downhill? As with every bubble, crypto and SPACs lost their attractiveness. After months, the initial boost of the sensational new product dissapears. After all, who spends millions on internet monkeys for any extended period of time? Tech giants were forcibly confronted with the consequences of their reckless hiring and spending. When interest rates finally rose back up to normal levels of roughly 4.4%, companies like Amazon could no longer pay employees with their current stream of revenue. Therefore, employers had no choice but to let them go. So, while it’s easy to jump to blaming corporations, the reality is that their hand was forced.
The recent layoffs reflect not only the one-time event of companies racing for SPACs and cryptos, but also the larger culture of Silicon Valley: a tunnel-vision focus on growth without consideration of any long-term planning. This inevitably leads to consequences that are devastating to investors, and, above all, the regular employee, who is left wondering how they are going to pay next month’s rent.
