Are Instacart layoffs a sign of things to come?

Instacart layoffs may be a sign of things to come

Instacart and HotelTonight have joined the herd of tech start-ups that are rightsizing their businesses heading into 2016.

Grocery delivery service Instacart recently laid off 12 recruiters, Re/code reported Dec. 29, citing multiple sources. The company said in an e-mailed statement to that it's reducing "the size of our recruiting team to better align with future goals."

In November, mobile booking service HotelTonight cut its staff by 20 percent (37 people). CEO Sam Shank said that the company has also upgraded its customer support system with a product built in-house so that representatives can handle multiple electronic chats at a time, rather than dealing with phone calls.

Silicon Valley's cash party is coming to an end

Start-ups are adjusting to a new reality in Silicon Valley. While venture funding has increased every year since 2009 and is at its highest level since the peak of the dot-com bubble, sentiment changed dramatically in the fourth quarter, reported last month.

Profitability, or the ability to get there, has suddenly become critical, indicating that venture-backed companies can no longer count on outside capital alone to fuel growth.

"There's a focus on unit economics that every CEO in the valley is now thinking about," Shank said in an interview. "Every time you have a transaction, how do you create the most profit and contribution margin for the company?"

Last-minute NYE hotel reservations

HotelTonight, which raised $45 million in 2013 at a reported valuation of about $300 million, generates revenue by taking a cut of every transaction. The app gained popularity by providing a sleek service to last-minute travelers, but operates in a highly competitive market that features, Expedia and even Airbnb.

Instacart, valued a year ago at $2 billion, also faces stiff competition from giant tech companies like and Alphabet as well as a host of well-funded start-ups, including Uber. The service is beloved by working Americans, who prefer not to set foot in grocery stores, but it's a notoriously low-margin business.

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The model has evolved from one based on product markups and delivery fees to a more dynamic approach with partner retailers paying to put their items on Instacart to take advantage of the app's growing customer base.

In a blog post on Tuesday, Instacart said that starting in January it's raising the price of Instacart Express (unlimited two-hour and scheduled deliveries over $35) to $149 a year from $99.

In its statement, Instarcart offered no hint that the job cuts were a sign of turmoil.

A shopper for Instacart studies her smart phone as she shops for a customer at Whole Foods in Denver.
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"We've experienced tremendous growth over the past year, both in terms of the deliveries we make and our employee population," the San Francisco-based company said. "We're continuing to hire for key roles in areas like engineering, data science and sales."

Additionally, most of the recent financing is "still in the bank," Instacart said.

Still, following job cuts by Evernote and One King's Lane, there's a clear trend toward belt-tightening and financial discipline as 2016 begins.