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In The Scoop #3 in February I predicted trouble is heading for some late-stage startups:
“Companies who are dependent on a large next fundraiser will tread more carefully, and several might slow hiring throughout 2022. At companies that are burning through investor cash and also struggle to raise the next round, I expect layoffs to come later in 2022, following failed fundraising events.”
We didn’t have to wait long for the first mass layoffs off the back of a failed fundraising event. On Tuesday, 5th April, Fast laid off all of its workforce of about 450 employees, of which about 150 were software engineers.
In this issue, I look deeper into Fast – including some exclusive information never published before – and offer predictions on the market. As usual, instead of the mainstream media coverage which the Fast bankrupcy has no shortage of, I am covering details from the vantage point of software engineers and engineering managers. We cover:
What happened? A summary of events.
Fast competing with Big Tech. How was Fast able to hire engineers with top-of-the-market Big Tech competing offers? The details, with an exclusive look at how Fast presented their offers.
Warning signs within the company. What signs did engineers notice, and what did they do about it?
The current situation within Fast. The mood, the options for software engineers, and details on the offers coming from Affirm.
Is the Fast collapse the start of a pattern? My take on whether we will see more startups fold as Fast did.
Advice when joining startups. How to avoid picking the “next Fast” as an engineer, or a senior engineering leader.
In January 2021, one-click checkout startup Fast raised a $102M Series B round led by Stripe. Until March 2022, employees assumed all is fine and the company has plenty of money in the bank, preparing for a Series C round. However, in the span of six days, Fast went from being valued at close to $500M to shutting down all operations.
On Tuesday, 29 March, The Information published the article Why Stripe’s ‘Fast’ horse is losing the one-click checkout race. In this article, they published the damning claim that the startup only generated $600K in revenue in 2021, all while burning about $10M/month in cash, and being close to running out of money.
This article went viral and events sped up for the company.
On Wednesday, The Information reported that Fast was offering to do mass layoffs and to lower their valuation to $450M as they try to raise $100M.
On Thursday, The Information published how Fast hired Morgan Stanley to look for a seller, and do so urgently.
On Friday, one of the first engineers at Fast quit and shared a cryptic message mentioning “incredible things” coming for those staying at the company:
Finally, on Tuesday, 5 April, Fast announced they are shutting down and letting all employees go. Most employees were told the news about an hour ahead Fast making the announcement officially.
The Fast story should be a warning sign that a well-funded scaleup could be closer to bankruptcy than it seems. Even as the company was burning through its funds at an alarming pace, employees did not notice major red flags. In fact, the lavish perks, high offers, and sign-on bonuses, and lavish company events suggested the opposite. As The Information reported:
“During calls with prospective employees, Holland would often mention the Stripe-led funding round, assuring some candidates that most of the money was still in the bank, a person with direct knowledge said. And in an employment offer letter from that period, Fast outlined several potential exit and fundraising scenarios, including one in which the company reached a $12 billion valuation. At the time, Fast had a private market valuation of less than $600 million.
Stripe’s backing was another big selling point for candidates, and some employees believed Stripe would eventually buy Fast.
Most employees didn’t have visibility into Fast’s finances. But lavish perks—such as the Tampa trip and executive offsites last year in Honolulu, Denver and New York—and exploding head count gave many employees the impression that the company was posting hockey-stick growth.”
Fast competing with Big Tech
Fast hired engineers, engineering managers, product managers, and executives directly from Big Tech. Many of the software engineers joined from Meta, Google, Uber, Amazon, Apple, Microsoft, and other well-known companies. Many joining had competing offers both from Big Tech and other high-growth startups.
How was Fast able to hire hundreds of people of this caliber? Money, storytelling, and equity.
Fast paid very strong base salaries, told a great story, and offered lavish equity. Most engineers joining didn’t know much about why the one-click checkout industry has the potential of billions. What they did know is Fast offered at or above base salaries of Big Tech, directors shared an enthusiastic story of the company being a rocketship, and they were granted equity which seemed like a golden ticket to retirement.
Fast base salaries were top of the market. For senior software engineers, Fast offered $200-240K/year in base salaries with full remote work. They offered this range not just in the US, but outside it, when hiring in Europe, converting the base salary to Euros (€180-€220K/year).
Large sign-on bonuses were common for engineers. Those who asked for it all received sign-on bonuses of $20-50K as a one-off payment. These types of sign-on bonuses are not uncommon at Big Tech but are much more rare at startups that are unprofitable. These large sign-on bonuses added to the feeling that Fast is doing well financially. Sign-on bonuses are typically repayable when the employee quits the company within 12 months. In some ways, the sign-on bonuses made the layoffs more bearable for those who joined recently, as they can keep the full amount.
Equity issued was lavish and presented as potentially life-changing. Senior software engineers received anywhere from 15,000 to 80,000 stock options, vesting over 4 years, with a 1-year cliff.
For more details on typical equity arrangements for software engineers, read my deepdive on this topic: Equity 101 for Software Engineers at Big Tech and High-Growth Startups.
Fast issued equity as stock options at their 409a valuation. They then presented various future scenarios from the company being worth $750M all the way to a $12B exit.
When handing out offers, most candidates got access to a spreadsheet that they were told is restricted to a select few. In this spreadsheet, they could take a look at how their equity is valued. I have accessed this spreadsheet and played around with it.
Here is a mockup of the type of data candidates saw, with the numbers an engineer with a $220K base salary and 30,000 stock options would have seen:
Visualizing the potential stock upside was a major reason many candidates chose Fast over Big Tech offers where the stock was liquid. In the case of Big Tech, stock upside exists but is limited. In the case of Fast, this upside was painted as potentially life-changing.
As a software engineer at Fast shared who joined in December 2021 shared:
“I remember this spreadsheet about the equity upside like yesterday. It was the reason why I left me previous company, where I enjoyed working and had a good package. The millions in gains looked so real – especially that Bolt’s valuation was just under $11B. It seemed realistic that Fast could get to a $12B valuation.
In hindsight, it was the worst decision of my career, to make the leave for Fast based on data displayed in this spreadsheet.”
Exploding offers because of “the inevitability of the Series C closing” was used as a tactic to close candidates at the end of 2021. Several employees were told at the end of December that their offer will expire in a few days, thanks to the Series C being very close to closing, and their equity offer not guaranteed after this. The candidates I talked to signed offers in December thanks to this news, assuming the new round was in the bag.
One thing the company did not share with candidates was revenue numbers. However, once joining, the new joiners found these out fast enough. And this is where warning signs started to go off.
Warning signs within the company
I talked with several employees about what warning signs – if any – they saw. And there have been plenty: they just seemed too small at the time to pay too much attention to.
A hockey stick of growth presented across the company – but with the Y-axis being employees. Some engineers saw this a strange sign – and, in hindsight, would now treat it as a warning sign of a company measuring growth with the wrong axis.
Tiny daily sales numbers that leadership and senior employees received was the first such warning sign. Internally, Fast was transparent on sales. Every day, L6 and above employees – engineering leadership, sales, company leadership – would receive a sales summary email that listed the number of sales completed with Fast checkout, and the total sales amount.
Fast did less than $300K worth of sales and below $6K in revenue on most days from January 2022 to April 2022. There were days with around $2,000 in revenue for Fast. This meant checkouts were completed in the low thousands. The biggest merchant on the platform would have 500-1,000 sales per day.
Engineers calculated the load Fast had in needing to serve their traffic. The Fast button was rendered less than 500,000 times per day – rarely needed to ever serve more than a few requests per second.
One of the few warning signs engineers noticed is how Fast spent far more on infrastructure than the scale of the operation would have called for. Engineers sometimes brought up suggestions to scale infra down, and save costs – given there was not much revenue generated.
Not having large clients on their platform was curious for some of the more business-minded engineers. The average volume of Fast customers was low because most customers were from small businesses. And yet, every small business needed custom engineering work to be done, making integration slow. Several engineers mentioned how they did not understand how spending lots of engineering effort for each small client resulting in little revenue would result in building a company that could be worth $12B one day.
Sales vs engineering and sales winning. The CEO of Fast was a salesman and rapidly built out a large sales group of over 50 salespeople. This group then signed up a large number of smaller businesses on the platform. With the sign-ups done, they pulled in engineering to do the integration.
However, integrating these smaller businesses was challenging thanks to several customizations needed for each new customer. Engineers were unhappy about not being consulted about sales agreements signed and felt that the strategy of rapid sales was not working out.
I have reports of engineering directly raising concerns to the CEO, and suggesting to focus on larger customers, fewer customizations, and bring in more revenue. Sales, however, wanted the opposite: close many deals and hit their targets of signups. In the end, sales got their way, and the strategy of many small merchants stayed in place.
The new CFO instituting an immediate hiring freeze was one of the more tangible warning signs for anyone paying attention. Fast landed a prominent hire by signing Robert Mitchell who was the CFO of Venmo prior to joining.
Mitchell joined in December 2021, and his first announcement was a company-wide hiring freeze. This was communicated as a “hiring slow-down” and was effective from early January. Signed offers would be honored, but no new offers were given out. In practice, offers to a few software engineers went out despite this directive. I confirmed an offer being extended by Fast on 7th of February, when the hiring slowdown should have meant no such offers.
The hiring freeze starting in December, however, did not stop Fast’s CEO to boast about their hiring spree in January, but not mentioning anything about the newly instituted “hiring slowdown”:
Despite the warning signs, no employee within Fast expected bankruptcy to be on the table until The Information published their series of articles last week. Engineers I spoke with shared how they assumed the latest round of funding is simply delayed.
Engineers got a new sense of confidence when the new SVP engineering joined. Vicky Xiong left Okta as VP of Technology to become the SVP and Head of Engineer at Fast, starting work in January 2022. In February 2022 she and CEO Dominic Holland did an interview with Business Insider which was widely circulated within the company. In this interview, Dominic shared how he expects to double the engineering headcount.
“As Fast continues to scale, Xiong’s strategic and technical leadership skills will be essential, Holland said. Eighteen months ago, the company had fewer than 20 engineers on staff. Today, it has over 100, and the engineering division is the company’s largest. Fast plans to double its current headcount of 390 total employees by the end of 2022, a strategy that Xiong will play a key role in. “
The interview was published in the middle of the hiring slowdown. This interview contributed to the feeling that all is good within the company, and the slowdown – or freeze – is only temporary.
A warning sign could have been the annual burn rate just for engineering – for anyone who would have done the math. Most software engineers at Fast were at the senior or above level, making $200K/year or more. Fast had about 150 engineers by early 2022.
The burn rate of just the base salaries for engineers would have been around $30M/year (150 x $200,000), not counting sign-on bonuses. Engineering was a third of the company’s headcount, though likely a more expensive third. With this math, it’s not hard to understand how Fast burned through its $100M investment in just over a year.
A cofounder going radio silent starting in March was another warning sign. Cofounder and COO Allison Barr Allen went suspiciously quiet on all internal company communications channels: Slack and email. People noticed: especially as Barr Allen was nowhere to be found on the week of The Information publishing the articles on Fast.
Barr Allen was removed from the company register of Fast AF Inc before the 7th of March: a month before the company would shut down. This change in corporate structure was not communicated to employees.
New joiners started at the company up to 3 weeks before the company shut down. On 13th of March, a new batch of employees started. While there was a hiring slowdown, the sense of new joiners made engineers assume all business is going as usual.
The assumption turned out to be wrong.
The first real warning sign came 11 days before the company shut down. On Friday, 25th March, as part of the regular weekly All Hands, the CEO shared news on how the Series C is delayed. Employees immediately asked if layoffs are to be expected. Dominic did not give an answer and ended the Q&A promptly.
Four days later, reporter Malique Morris of The Information published how Fast is having troubles, failed to raise their Series C and only generated $600K in revenue. From this point on, employees could only turn to articles published in the press for updates on what is happening at Fast, as their leadership stopped sharing updates until the layoffs happened a week later.
The current situation within Fast
While Fast has laid off all employees, this does not mean that all employees are without jobs.
Software engineers are getting a huge number of outreaches. The people I talked with got over 100 inbound messages from companies interested in hiring full-remote software engineers. The news of Fast’s shutdown went viral, and this is resulting in more than expected options for many software engineers as they decide who to interview.
Affirm is hoping to take on a good part of Fast’s engineering team. In a deal negotiated by Fast’s engineering leadership, Affirm is extending offers to about 100 of the 150 engineers at Fast. Within Fast, engineers credit this deal negotiated to SVP Engineering Vicky Xiong. Outside of engineering, other functions don’t have a lifeline like this negotiated.
Affirm employs about 700 software engineers and has budgeted to hire in the hundreds for 2022. Taking on engineers who worked in a similar domain is a win for both parties.
Engineers at Fast are receiving offers from Affirm in the near future. Offers are somewhat lower in base salary than what Fast paid, however, they come with liquid stock. Most engineers are happy with the offers, as their total compensation is higher thanks to the stock component.
The mood among Fast alumni is mixed. A good part of people are echoing how working at Fast was an amazing experience. People liked the culture, and how employee happiness was a priority. There are people who are frustrated and disappointed with company leadership, and how the bust came out of nowhere.
A start of a pattern of startup layoffs?
Is the Fast layoff a start of similar events? I do see a trend on how it might be.
In September 2021 I wrote about how we are seeing the most heated tech hiring market of all time, and large VC investments were one of the drivers of this trend.
In The Scoop #3, when sharing Peloton and Hopin layoffs, I did a deep dive into the topic of whether the market is cooling, talking with founders and VCs to understand the market. I am seeing more signs that we are headed to a chilling market not just among late-stage companies, but publicly traded companies as well.
I’ll cover more details for full subscribers next week, in the next issue of the Scoop. Sign up if you’re not already to get more details on where I see the market heading, and what this means for those working in tech.
Advice when joining startups
Given we might see more startups and scaleups laying off, how can you avoid joining a company that is on the path to bankruptcy? Here are a few things that can help.
Do your research on the company and founders. Do your homework on the history of the company, and past red flags. I did this when I got a reachout to potentially interview for Fast in the second half of 2020. I found some unsettling information about the founder of Fast, Dominic Holland. From his previous startup going bust, him firing staff over a text and threatening to sell sensitive personal records. In the early days of Fast, he terminated contract software engineers in Africa with no justification after the raised funding off the prototype they built, never acknowledging their work.
Too many red flags for me to entertain any form of engaging with the company with a CEO with such a past.
Doing research might be harder if the startup is secretive, or it has first-time founders. Still: do some digging.
Ask for numbers. How much runway does the company have left? What is the burn per month? What is the revenue of the company, and what is the spending?
Especially when joining at senior levels – Staff engineer or above, Director or above – it should be a red flag if people don’t share these numbers with you, at least verbally. If you get pushback, you can always use the Fast story as reasoning on why you want to know these numbers.
Ask if there is a clear set of key business metrics are and if engineers have access to these close to real-time. Is it the number of users? Revenue? Signups? Percentage of returning daily users?
If the answer is “no” to either of the questions, treat it as a red flag. In the case of Fast, these metrics were likely not defined, and the data was not shared with all engineers.
For a counter-example, Skyscanner – a flight search engine – clearly defined their main metrics as the revenue generated per day. From the early days of the company they would make these numbers available to all staff: displaying them on monitors, and sending them out over email. Everyone was aware of how much money the company made, and how their features increased or decreased this number.
In the 2010s, Skyscanner was one of the few companies which was cashflow positive by the time it became a unicorn. Founded in 2001, the company was profitable every year from 2009 to 2020, and became a unicorn in 2016.
Reverse interview your future manager and a founder. Once you have an offer, ask to talk with your future manager and a founder. Collect all your doubts and questions, and ask them on the spot.
Ask to talk with lead investors. Investors are almost always happy to jump on a call to talk with potential candidates. Expect that this will mostly be a sell call, where the investors share why they invested in the company. Still, you might find out information.
Talk with people who left. Try to find people who left the startup, and who were in a similar position to what you are applying for. Message them on LinkedIn, and ask if they can share why they left. A surprisingly large number of them tend to reply.
For executive positions: reach out to VCs. If you are joining as a Director or above, do backchannel checks through the VC network. If you already have VC connections, ask if they can get you information on the startup. If you don’t yet have VC connections, try reaching out to VCs on Twitter or LinkedIn who work at some of the well-known funds I list in the article Finding the next company to work at.
Make a plan if the stock grant is worthless. Startup equity has a large upside: and you will be shown this upside. What you won’t be shown is the scenario of the stock being worth nothing.
Prepare for this scenario as well. What will you gain if you only get paid the base salary? Will you still come out better for the experience, thanks to learning, a career boost, or by not wondering “what if…?”
If you only join a startup because you’re counting on the stock multiplying: you might be in for a disappointment in today’s market.
Know that risk and reward are often connected. Base salary is the risk-free component of any compensation offer. Equity is less risky for publicly traded companies – however, public equity has it’s own risks. As I explored The Scoop #7, many employees are seeing stock prices, and their total compensation drop steeply. From that article:
“The difference in total compensation outcomes between the two buckets of companies is stark. This is especially true as many of these companies offer comparable compensation packages for new hires. (…)
$279K in annual compensation difference between Nvidia and Stitch Fix ($510K and $231K respectively) and $834K difference in outstanding stock for the next 3 years.
$162K in annual compensation difference between Apple and Robinhood ($420K and $258K respectively) and $485K difference in outstanding stock for the next 3 years.”
The risk of privately traded companies is higher: the earlier stage they are, typically more the risk, and the potential for upside.
Decide on your risk appetite, do your research, and take a gamble you are comfortable doing so.
Not every startup operates like Fast, but many startups face the same types of problems that Fast had. The Fast story is memorable because it’s rare to see so much capital burnt with so little to show for. $120M of investment evaporated, generating likely less than $1M in total revenue.
Most startups are not as reckless in burning investor money as Fast was. However, most startups are losing money and need follow-up investments to be able to pay people and keep growing.
Pay attention not just to growth numbers, but the path to profitability. Understand how the investor market is changing, and how it will be harder for some companies to raise money: especially if their revenue growth is low.
Learn from what led to Fast not being able to raise their next round – and their shutdown – so you can spot similar patterns – before it’s too late.
Do you have tips, scoop to share or feedback on this issue? Send me an email at firstname.lastname@example.org or a direct message on Twitter. I keep all sources anonymous.
Pragmatic Engineer Jobs
Check out jobs with great engineering culture for senior software engineers and engineering managers. These jobs score at least 10/12 on The Pragmatic Engineer Test. See all positions here or post your own.
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