Job losses spread in Silicon Valley

A wave of job losses has started to spread across California’s Silicon Valley as the trademark optimism of the region’s technology start-ups has turned to pessimism amid the financial market rout.

The rapid reversal in mood has reawakened memories of the dotcom bust in 2001.

The entrepreneurs making the cuts, however, claim a much greater sense of realism than was shown during the first great internet shake-out, when many web companies reacted too late to the downturn.

“It’s the need to get profitable immediately. We’re heading for some tough times,” said Iggy Fanlo, chief executive of AdBrite, an online advertising network that made 40 of its 100 employees redundant last week.

“I made the decision to go very deep, very quickly so we won’t have to do it again.”

The change in mood in Silicon Valley was highlighted at a private meeting called this month by Sequoia Capital, one of California’s blue-chip venture capital firms, for the bosses of all the companies it has backed. Entrepreneurs attending the meeting were greeted with a presentation that began with a slide showing a gravestone and the words “RIP good times” and were told to treat every dollar they spent as though it was their last.

“The meeting catalysed not just Sequoia companies but a lot of companies starting to do cutting,” said Seth Sternberg, co-founder of Meebo, an instant messaging company, who was at the event. “We are just hiring for critical roles,” he added, after scaling back more ambitious expansion plans.

Fears of a deep economic downturn have hit as members of a new generation of web companies, created in a start-up boom since 2004, have only just started to try to make money, with most still a long way from profitability.

“I think the situation is very, very serious,” said Loic Le Meur, founder of Seesmic, a video blogging site, who has made 10 of his 24 workers redundant during the past month. “From my network of entrepreneur friends, half are in a critical situation for the next six to 12 months.”

Cyan Banister, co-founder of Zivity, an adult entertainment website that last week cut eight of its 22 staff, said: “We needed to clamp down and weather whatever storm is about to hit.”

Other experienced start-up investors have been spreading the same warning as Sequoia, telling companies to cut back in anticipation of a severe downturn.