Company’s share price has risen 13 percent since layoffs were announced.
Earlier this week, Thinkific Labs announced plans to lay off 100 employees—approximately 20 percent of its workforce—in an effort to cut costs.
In an interview with BetaKit, Thinkific co-founder and CEO Greg Smith said the layoffs came as an effort to reduce the company’s cost structure amid what has become a difficult and unpredictable capital-raising environment.
“It’s harder and harder for companies to raise money these days.”
-Greg Smith, Thinkific
“Looking at the capital markets, public and private, I don’t necessarily know that there will be financing available for companies over the coming years right now,” said Smith. “It’s harder and harder for companies to raise money these days.”
Valuations of publicly-traded tech firms have dropped significantly amid rising inflation, interest rates, and Russia-Ukraine-related tensions, which has made it more difficult for unprofitable, high-growth firms to access financing.
Vancouver-based Thinkific offers cloud-based software that helps entrepreneurs and businesses launch, grow, and diversify their businesses by creating and selling online courses and other learning products through its platform.
Thinkific made its Toronto Stock Exchange debut in April 2021 amid a boom for Canadian tech initial public offerings (IPOs), raising more than $160 million CAD in gross proceeds. So far, however, this group has produced dismal returns, and most Canadian tech companies that went public last year continue to trade under their issue price.
After hitting a 52-week high of $19.47 CAD last summer, Thinkific’s shares plummeted to $2.98 apiece pre-layoffs. So far, public markets have reacted positively to the layoffs, as the company’s stock has jumped over13 percent to $3.43 at time of publication.
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“The responsible thing, not knowing how much is available when, is to preserve what you have now,” said Smith. “It’s a very painful and unfortunate thing to have to let go [of] 100 people today, but I think it’s the more responsible decision than taking the risk that it maybe would have to be more in the future.”
Smith outlined Thinkific’s ambitious post-IPO hiring goals in an interview with Betakit last year. The company nearly doubled its headcount from 270 at the end of Q1 2021 to 499 pre-layoffs.
The CEO acknowledged that Thinkific “probably” grew its team too quickly. “Sometimes you grow rapidly in ways that you need to at the time but aren’t great for the long run,” said Smith. “And so this was a way of correcting some of those mistakes along the way—not correcting people mistakes—these are amazing people, but just how we structured the company.”
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According to Smith, these layoffs do not impact the company’s growth strategy. The CEO said the company sought to ensure it didn’t cut into their growth drivers, which include sales and marketing and research and development (R&D). Teams in both segments saw more minimal staff reductions. Smith said Thinkific was able to find “a lot more efficiencies” across its general and administrative functions, which saw heavier layoffs.
Smith said Thinkific was “fortunate” to have raised “a significant amount of cash” through its 2021 IPO. The company currently has $110 million USD on its balance sheet.
In 2021, Thinkific spent $18.3 million USD in cash to support its operations, generating revenue of $38.1 million and a net loss of $26.4 million. The layoffs carry $3 million in one-time severance-related costs and bring Thinkific $10 million in annual savings.
Given these layoffs and the company’s current cash position, Smith said he believes Thinkific is “well-situated for the future.”
Feature image courtesy Thinkific.