The economic shock from the COVID-19 pandemic is now reaching deeper into Boston’s once-booming tech industry, with two of the region’s most promising companies announcing layoffs and furloughs of employees in recent days.
Toast, the maker of popular software and systems used by the restaurant industry, said late Tuesday that it was laying off over 1,000 employees, reducing its workforce by about half through layoffs and furloughs. The company said that restaurant revenues have declined by 80 percent since state and local officials began shutting down businesses nationwide, and “our success is tightly coupled with the success of the restaurant industry."
The company, which provides management software to restaurants, announced a $400 million Series F funding round and a $4.9 billion valuation in February.
Another fast-growing firm, EzCater, also announced late Tuesday that it would be laying off 400 workers. The Boston-based company, which facilitates catering orders for business meetings, has been valued by its investors at more than $1 billion and had 900 workers prior to the layoffs.
Meanwhile, on Wednesday morning, Wayfair, the online furniture retailer that has become the city’s most successful consumer-tech company, disclosed more details about a half-billion debt investment it received from two private equity firms earlier in the week. SEC filings from Wayfair indicate that the housewares company has taken on a $535 million loan from Great Hill Partners and Charlesbank Capital Partners. The deal gives the investors two seats on the company’s board of directors, giving the cash-burning enterprise access to funds at a time when the stock market is struggling.
While the money bolsters Wayfair’s balance sheet, it will also dilute somewhat the power of cofounders Niraj Shah and Steve Conine, who also serve as cochairs of the board of directors. The pair recently oversaw a round of layoffs in February that affected 550 workers, 350 of which were in Boston.
The pandemic has caused many established and profitable tech companies to reset expectations for Q1 and all of 2020, said Ben Rose, the president of Lexington-based Battle Road Research. And that’s making it that much harder for startups or companies that have gone public but are still bleeding cash.
“Tech unicorns that are unprofitable will have difficulty accessing the public markets, as investors fear their business models will not prove out," he said. “Wayfair is an example of an unprofitable tech company,” he added, which is why it needed to approach private investors who are going to ask for a guarantee of a higher rate of return in exchange for taking on greater risk.
However, Rose said he’s more optimistic that profitable companies that are growing organically — instead of through acquisitions — will have the best shot at going public once the coronavirus fear subsides.
In a letter to staff, Toast chief executive Chris Comparato wrote that the company had tried to support restaurants that were among the first businesses to be closed in the shutdowns, issuing credit to customers and creating free access to online ordering.
But that took its toll on Toast itself, Comparato said. The company had been seeing such significant growth last year that it was in the process of scaling up hiring. “But with limited visibility into how quickly the industry may recover, and facing slower than anticipated growth," he wrote, "we now find ourselves in the unenviable position of reducing our headcount.”
The company has frozen hiring, pulled back on offers, halted merit increases, and will reduce pay of senior executives. It said it will offer a severance package, benefits coverage, mental health support, and an extended window during which departing employees can purchase vested stock options.
EzCater was even more blunt, saying in a statement, “There is not enough sugar on the planet to sugarcoat this: we’re a company that feeds meetings, and meetings are not happening much right now.”
Meanwhile, the region’s consumer-facing tech firms serving the travel industry have already been hit hard as many of these companies provide accommodations for corporate offices, which are now closed as employees work from home. Lola.com, Zipcar, Hopper, and Wanderu have all cut back workers as travel restrictions have decimated the industry. At Logan Airport, the number of passengers fell by 93 percent between March 23 and 29, compared to the same period last year, according to the latest Massport data.
Corporate catering startup Alchemista and smart water-machine maker Bevi are among the other startups that have also laid off or furloughed workers, citing the shutdown of the office market.
Bevi chief executive Sean Grundy said the company let go of 33 employees in March, putting the company’s headcount at 120. Before the pandemic, the company had raised $60 million in venture capital funding.
“We get real-time information on how the machines are being used, and over 90 percent of our machines are off right now,” Grundy said. “Our risk models never included the possibility that literally the whole world would stop going to work one day — that is a pretty out-there scenario.”
He realizes that all companies are thinking about how to save money, and hesitant to sign new contracts and sign up for new expenses. But he’s hopeful that the tech industry will rebound and offer an opportunity for innovation.
“If this pandemic continues for, say, a year, and work from home mandates get extended, I think entrepreneurs will find innovative business models and adapt to this new lifestyle,” Grundy said.
Semyon Dukach said he doubts the pandemic will have as large an impact on the city’s startup scene as when earlier bubbles burst.
“The first couple of weeks were the worst, people were panicked,” said Dukach, a tech investor who runs One Way Ventures and previously led the Techstars Boston startup program. “If you’re in restaurants or hotels, you’re going to be hurting. If a funding round falls through, you might do a layoff.”
But, he said, “in tech, most people grow fast" and run the operation at a loss. "You raise money from investors periodically. You’re much better off than a restaurant, or any business that operates on a margin.”
"I don't think it'll affect tech as much as in 2000," he said, referring to the dot-com bust. "Tech valuations will come down a bit, but they're not going to collapse."
Many tech startups he knows have applied for federal stimulus money through the Paycheck Protection Program. “A bunch said they’re already approved," he said. "It’s massive.”
Jon Chesto and Greg Huang of the Globe staff and Globe correspondent Anissa Gardizy contributed to this report.