High-flying unicorn Socure lays off 13% of staff as fintech troubles spread
Socure, a recently $4.5 billion fraud prevention and identity verification startup, laid off 69 employees, or 13% of the company’s workforce, this week, said co-founder and CEO Johnny Ayers forbes today. The layoffs primarily hit the marketing, sales, and human resources teams, Ayers said, with “very little impact on engineering, product development, and data science.” Until he confirmed the layoffs forbesSocure hadn’t officially announced its downsizing, but earlier this week word broke on Glassdoor, where the company was the target of some unfavorable employee comments even before the layoffs.
Ayers insists Socure has more than two years of cash in the bank after raising $450 million last November, but he now wants to show it can be a sustainable company that doesn’t require constant inflows of leverage needed. “If we look at the public markets … we want to get cash flow and profitability right,” he said.
Founded in 2012, Socure uses machine learning algorithms to help other companies verify that their new users are real people using their real identities. It has a sizeable list of clients ranging from Citibank and digital bank Chime to gambling site DraftKings. Ayers has claimed “four of the top five banks” in America as clients, as well as the “largest crypto exchange” and major NFT marketplaces. “We have pretty much every major consumer fintech,” he says.
Socure’s rollercoaster growth over the past two years is typical of many fintechs. It grew rapidly during the pandemic, growing from 283 customers at the end of 2020 to more than 1,000 currently, more than half of which were financial services firms. In 2021, Socure’s valuation tripled in seven months to reach $4.5 billion. Staff numbers skyrocketed, going from 120 people at the end of 2019 to over 500 earlier this year. It moved its headquarters from New York City to Nevada and began allowing all employees to work remotely full-time.
But in 2022, as inflation has soared, stocks have entered a bear market, and crypto has lost 60% of its value, the growth of some fintech companies has abruptly slowed. Fintech stocks have fallen even more than the S&P 500. Valuations in new funding rounds for private fintechs are beginning to decline, and layoffs have begun – notably at leading US crypto exchange Coinbase and buy-now, pay-later firm Klarna.
Venture capitalists have begun advising startups to pull out and cut costs, so companies have started spending less on marketing. That has resulted in fewer new users for some Socure customers and less revenue for Socure — significantly, about 80% of its revenue is transaction-based, meaning it makes a lot more money when customers are in expansion mode and actively using its product to review new ones user identities.
“The dare [capitalists’] Appetite to watch them burn [rates] relative to growth rates” affects Socure’s customers, Ayers says. (The burn rate refers to how much money a company loses each month). He adds that the cost of attracting new customers has risen sharply for startups as categories like digital banks and buy now pay later have become more competitive, which is also forcing them to back off from marketing.
“All of this adds pressure to the entire industry,” he says. He claims there has been “zero churn” among Socure’s top 100 clients since 2019. In other words, none of the top 100 customers have stopped using Socure in the last few years – it’s just that they’re attracting fewer new and reviewing users, which means less revenue for Socure.
Aside from the slowdown in growth, another major problem has surfaced for Socure over the past three months: it has seen a notable surge in critical reviews from anonymous employees on Glassdoor. Five reviewers use the word “toxic” to describe the leadership team or work environment, with one writing, “The attitude being sent down by leadership is very ‘shut up and work’.” Management encourages working to the point of burnout and failure.” In response to this criticism, Ayers says, “Our culture is characterized by high growth and high impact. We are and strive to be one of the 10% best performing companies in the world…this requires that we work very hard and work very smartly.” He says the company strives “to create an inclusive environment where employees can to express an opinion”.
Five of Socure’s 58 Glassdoor reviews criticize the company for either a lack of diversity or for not trying to make the workplace more diverse and inclusive. According to Ayers, Socure is “very aggressive in our commitment to fair hiring, compensation, promotion and mentoring for all of our employees.” He says the company’s leadership team is 40% black. His website shows that among his top 12 executives, two are women.
“Our culture is one where we’re really focused on performance, unlike some people who want their personal needs to be served by a for-profit company,” says Ayers. “We have people on our team who want us to make public statements and respond to every single celebration. Our message was that we really need to focus on the mission and the vision for what we want to achieve… Not everyone agrees with that.”
Ayers insists he has put significant effort into making Socure’s product inclusive. The company released a study last fall showing that Socure’s AI-based identity verification service increased the number of Asian, Hispanic, and Black customers automatically admitted to customer service by 46%, 36%, and 28%, respectively Compared to a “legacy identity verification provider.”
In the past two years, Socure has also faced a number of lawsuits. Two were claims of employment discrimination, both of which were subject to binding arbitration (as required by Socure’s employment contract). Socure co-founder Sunil Madhu is also suing the company, claiming it didn’t let him exercise his stock options. Ayers declined to comment on the details of the pending lawsuits, saying, “We deny all allegations and intend to vigorously defend our position.”
With additional reporting by Dylan Sloan.