After nearly two decades of easy money raining on startups, executives at established brands and retailers were starting to wonder how long the party would last. It clearly looked like Wall Street had a limitless tolerance for losses, especially for companies that were scaling fast - and had a tech component (even if it wasn’t a tech company in any sense at all). Now it looks like business models that were eschewed as ‘old school’ - such as slower but profitable growth, combined wholesale and direct to consumer models, and physical stores - are back in favor. In the second quarter of 2022, global venture funding fell 23% - marking the biggest quarterly percentage drop in deals (and the second-largest drop in funding) in a decade, according to CB Insights. M&A deals trended down for the first time in 8 quarters, dropping to 2,502 — a 6-quarter low. IPOs fell 15% and SPACs dropped by 26% quarter-on-quarter, according to CB Insights data. Early-stage valuations dropped 16.1% from the first to the second quarter of 2022, the first for the first time in 10 quarters, according to PitchBook data. Later stage companies, including payments app Klarna, have lost billions of dollars in valuations this year. <h3><b>Investors Begin to Prioritize Profits</b></h3> For over a decade, investors narrowly focused on growth claiming ‘give me the top line and we can fix the bottom line later’. Now with the combination of inflation putting pressure on consumer spending and rising interest rates (making risky investments less attractive), investors are less willing to subsidize brands that have no clear pathway to near term profitability. <blockquote> DTC brands are twice as likely as brick-and-mortar stores to report they’re unprofitable. <footer> <cite>- according to a survey by Ipsos for Publicis Sapient and Salesforce</cite> </footer></blockquote> This has resulted in DTC apparel brands, whose founders were heralded by the media as defining the way forward for fashion, now scrambling to secure mall space and signing wholesale deals as fast as they can. Allbirds plans to open 16 to 17 new stores this year while shoring up its wholesale business. Glossier and Paade have partnered with retailers to bring their brands into physical retail stores. After over a decade run, the data shows that DTC brands are twice as likely as brick-and-mortar stores to report they’re unprofitable, according to a survey of global retail leaders conducted by Ipsos for Publicis Sapient and Salesforce. Around 70% of those surveyed said the massive push toward e-commerce during the pandemic was done in “less-than-optimal ways.” <h3><b>Cutbacks Keep Coming</b></h3> As the classic domino effect hits the tech sector a growing number of startups are finding that investors have lost patience with the ‘strong sales gains, but continue losses’ model that has defined almost everyone of these companies - regardless of the industry sector. Both Carvana and Allbirds posted losses in the second quarter, leading them to make major workforce cuts. Allbirds trimmed 8% of its global employees last week, while Carvana laid 12% of its workers off in May. Warby Parker layed off 15% of its corporate workforce and Glossier has also made staff reductions. Stitch Fix laid off 15% of its workforce in Q2. They are joined by Peleton, which fell from grace earlier this year, and just announced plans to cut 800 more jobs as it embarks on an overhaul that also includes raising prices for its bikes and treadmills. US-based meditation app Calm has laid off 20% of its workforce, becoming the latest US tech startup to announce job cuts. Even e-commerce platform Shopify has hit hard times, and announced that it would lay off about 10% of its workforce.