What tech employees need to know to survive the global slowdown
When overheated tech markets cool and valuations shrink, the down rounds that follow can be brutal for workers
AS inflation bites, interest rates rise and a potential recession looms, the global tech sector is facing a major slowdown. Even Google parent company Alphabet, long seen as unassailable, is seeing growth falter. As the repercussions of an overheated tech market suddenly turning ice cold reverberate around the world, what does it mean for tech workers in the region?
Zooming out, when valuations suddenly skyrocket, as they did in 2021, and then stabilise, as they are doing now, things become problematic.
For an employee, a company going from US$1 billion to US$10 billion then back to US$4 billion is not the same as a company growing from US$1 billion to US$4 billion organically. While the final valuation may be the same, the steps that follow a down round are far more brutal for employees, who may find themselves facing massive personal tax liabilities, debts or more. We’ve seen this hit employees at major tech companies in Europe and the US across recent weeks, but what about Asia?
While some claim that recently raised megafunds and the structural growth factors in Asian economies will prevent a downturn in the region, we will still likely see numerous tech valuations go down as inflation bites, interest rates go up, recessionary factors kick in and the “dry powder” raised in 2021 is reallocated to preserve a handful of existing valuations to prevent accounting markdowns.
Implications for Asia’s tech employees
If the region slows down, and companies face reduced valuations, how will that impact the hundreds of thousands of tech workers across Asia? There are three key consequences to consider:
1. Real compensation implications: Slowing valuations may mean that employees will see their expected total compensation reduced, sometimes quite significantly. Some of these people may have incurred larger than planned debts, such as mortgages, based on expected incomes and the “wealth effect” associated with them. Employees who signed contracts with compensation packages based on the last fundraise may see these figures drop, leaving them with less cash in their pocket in years ahead, compared to what they planned for.
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2. Tax implications: While countries have their own regional variations, these differences are more pronounced in Asia, especially in South-east Asia. This is because the region has a massive differential in both tax rates and tax regulations. A Singaporean company might make decisions around the company valuation (eg taking a down round) that have a limited impact on Singapore-based staff, thanks to sophisticated tax legislation, but could majorly impact employees in countries with higher taxes and less sophisticated regulation around Employee Stock Option Plans (ESOPs)
3. Preference stacks: As companies take new rounds at more investor-friendly terms, we are likely to see a return to “preference stack” conversations; this is the preference that investors get on cash raised in the case of a liquidation event that falls below the last company valuation. As companies facing funding challenges may opt for liquidating at reduced valuations, employees may be left with a fraction of their estimated share value.
Look for clarity, prepare for resilience
It can be difficult to understand your position even in normal startup conditions – let alone in an unpredictably volatile market. If there’s one action for tech workers in Asia to take, my advice would be to start by seeking clarity. Pose specific questions around the value of your options to your hiring manager, compensation team, new employers or even all-staff town halls. Outside of work, find a tax planner to get a better understanding of your own situation.
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The Asian technology community is young and somewhat green, but we are resilient. The region has survived the economic shocks from multiple slowdowns and this will be no different. The battle scars gained in this cold snap will help the market to mature, and grow more sophisticated, allowing us to further bridge the gap between the region and leading global tech hubs like Silicon Valley.
This is the time iconic companies are built; increased volatility will lead to a whole array of opportunities for new solutions, distractions will be culled, and costs will be normalised as the fundraising environment rebases.
While the short-term outlook is shaky, it’s an exciting time to be employed in tech. Align with the long-term orientation of the company you work for, or are looking to join, look past topline valuations for real value, and do the maths to make sure your package is valuable for you.
The writer is co-founder of dothemath.tech and Fintech Angel Operators, and head of region, APAC for Remitly
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