The high flying years of early-stage venture funding appear to be gone, and startups everywhere are preparing for a future when they can't count on additional runway.
For many startups, that means it's time to take off with growing revenue and profitability or pump the brakes and start jettisoning employees, assets or both.
Austin-based Sana Benefits Inc., which provides small group health insurance, is among the many startups pumping the brakes ahead of an uncertain future. On Nov. 1, the company announced it has laid off about half its team – 73 employees total. That followed a 19% staff reduction in February.
Its reasoning might serve as a cautionary story for many startups.
Sana is coming off of a $60 million series B round announced in June 2022 that brought its total funding since its 2017 founding to $107 million. In 2022, the company was touting 200% year-over-year growth in its customer base. In the startup world, that would be considered a success story by most.
The company wasn't profitable yet, but founder and CEO Will Young said that wasn't a concern at the time because they could raise new venture funding, plow money into research and development and help its product stand out in a crowded field.
"The world has changed, however, and venture funding is harder to come by now," Young wrote in a Nov. 1 blog post. "Particularly for companies in the healthcare and insurance worlds (we check both boxes). The hard fact is this new environment rewards profitability today over future investments. We have to reposition ourselves accordingly."
Venture support for insurance technology has fallen dramatically in 2022 and 2023, according to a June report by Dealroom, Mundi Ventures, MAPFRE, NN Group and Generali. The report showed funding dropped about 50% from the first half of 2022 to the first half of 2023. That's been especially pronounced for late-stage deals.
Meanwhile, sectors like artificial intelligence and biotech have been gobbling up a larger share of venture dollars. And, as always, venture firms continue to place big bets when they see promising innovating and founders. Austin-based Infinitum, for example, recently secured $185 million in the biggest funding deal for an Austin-area startup so far this year.
Sana's deep cuts, however, pave the way for the company to become profitable, which could set it up for investment down the line. Young said the business is going to be immediately cash flow positive following the layoffs.
"We will continue to invest in growth and R&D, but only to the extent our profits support that investment," he wrote.
It wasn't immediately clear what types of severance and support laid off employees may be entitled to. Back in February, when it announced it had cut its team by about 19%, the company offered impacted employees severance equal to three months of base salary, about three months of paid health benefits and career transition services.
"We have had to say a lot of goodbyes, and I mostly feel awful at this moment," Young wrote this week. "The impacted employees are talented, mission-driven people, many of whom are not only colleagues but also friends."
He also wrote that anyone who is currently hiring would be lucky to bring on former Sana employees and offered to make introductions and provide references.
"Six years ago Nathan [Hackley] and I started Sana, and those years have not been easy," Young wrote. "Today was not easy. I don’t expect the coming years to be easy either. But through all that struggle we are building something of which I’m immeasurably proud."
