The app hit a $4 billion valuation during the pandemic

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Social audio platform Clubhouse announced on Thursday that it was laying off half of its staff in order to “reset” the business. This shouldn’t be a surprise.

If there was a poster for the tech industry’s irrational exuberance during the Covid pandemic, it was Clubhouse.

With the physical world closed for business, consumers have sought other ways to congregate and be entertained. Celebrities too. Technology leaders too. Venture capitalists too.

Back then, capital was still cheap and plentiful. The software was still seen as “eating the world”, in the famous words of the investor Marc Andreessen. It was time for the next big social network. Clubhouse, which allowed people to listen to discussions on topics including music, tech, fashion, tech and more, was on a viral curve. MC Hammer, Oprah Winfrey and Mark Zuckerberg were there.

In January 2021, Andreessen’s venture capital firm, Andreessen Horowitz, led an investment in the company at a reported valuation of $1 billion, up from $100 million in mid-2020. Three months later, that number has grown to $4 billion, Tiger Global and DST Global joining in the fun. By mid-April that year, downloads had reached 14.2 million, according to App Annie (now Data.ai), but growth had flattened out before a revenue model was in place.

At the end of 2021, the Covid boom was fading. Economies were reopening and the Federal Reserve was signaling that the long period of low interest rates was coming to an end. Tech stocks peaked in November 2021, just as the latest in a massive wave of high-value IPOs hit the market. Share the prices of beneficiaries in the home as Zoom And Platoon got run over.

Clubhouse fashion evaporated so quickly that Thursday blog post, indicating that the company was laying off 50% of its staff, seemed to have had to intervene several months earlier. Davison told Bloomberg at the end of 2021 that we “grew up, way too fast” earlier in the year.

In Thursday’s post, Clubhouse said the downsizing was necessary to “reset the business,” which LinkedIn says has just over 200 employees.

“As the world has opened up post-Covid, it has become more difficult for many people to find their friends on Clubhouse and to incorporate long conversations into their daily lives,” co-founders Paul Davison and Rohan wrote. Seth. “To find its place in the world, the product must evolve. This requires a period of change.”

Layoffs have become a central part of the fabric of the tech industry over the past year as software, e-commerce and social media companies grapple with a sluggish economy. There have been more than 184,000 tech job cuts this year among more than 600 companies, after nearly 165,000 in 2022 at more than 1,000 companies, according to Layoffs.fyi.

Clubhouse’s situation was more precarious than most. Its valuation was considered frothy even in 2021 when the market was hot. Venture capital, especially late-stage venture capital, has largely dried up since the start of last year, and even the most promising, high-value companies like Stripe and Cloth saw their valuations drastically reduced.

Outside of the AI ​​boom sparked by OpenAI’s ChatGPT, there’s little action in the billion-dollar private tech world.

Still, the Clubhouse founders insist they have enough capital to continue, having raised hundreds of millions of dollars in 2021.

“We came to this conclusion reluctantly, as we have years of lead left and don’t feel any immediate pressure to cut costs,” the blog post says. “But we believe a smaller team will give us focus and speed, and help us launch the next evolution of the product.”

For departing employees, Clubhouse said it is paying salaries and covering health care through the end of August, accelerating stock acquisition and providing career support.

Where does the business go from here? The founders also addressed this concern.

“For those left behind, we know this is a difficult time for you too,” they wrote. “Not only are you saying goodbye to the people you have built with, but many of you will feel uncertainty about the future. We want you to know that we are making this change to ensure our future is strong. .”

Davison and Seth said they are working on “Clubhouse 2.0” to be “a better way for all of us to hear the voices of our friends, have more meaningful conversations, and feel connected to the people around us.” .

To succeed, they challenged increasingly longer odds. Consumer Internet businesses win by attracting a large audience first. Once they have reached critical mass, they can monetize their user base through a combination of advertising, subscriptions, or virtual goods.

More often, however, viral apps are hot for a while and then die either because the novelty wears off or because a larger platform creates a copycat. Either way, when the buzz goes away, the momentum rarely returns.

SHOW: Facebook takes on Clubhouse



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