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Facing Slowing Growth And Worker Discontent, High-Flying Fintech Unicorn Socure Lays Off 13% Of Staff

Socure, a fraud prevention and identity verification startup recently valued at $4.5 billion, laid off 69 employees this week, or 13% of the company’s workforce, cofounder and CEO Johnny Ayers told 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 to Forbes, Socure had made no formal announcement of its downsizing, but word began to spread earlier this week 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 left in the bank after raising $450 million last November, but he now wants to demonstrate it can be a sustainable business that doesn’t need constant infusions of outside capital. “As we look to 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 sizable roster of customers ranging from Citibank and digital bank Chime to gambling site DraftKings. Ayers has claimed “four of the top five banks” in America as customers, as well as the “largest crypto exchange” and major NFT marketplaces. “We have pretty much every major consumer fintech,” he says.

Socure’s roller-coaster growth over the past two years is typical of many fintechs. It expanded rapidly during the pandemic, going from 283 customers at the end of 2020 to more than 1,000 currently, with more than half of them being financial services companies. During 2021, Socure’s valuation tripled in seven months, hitting $4.5 billion. Headcount shot up, going from 120 people in late 2019 to more than 500 earlier this year. It moved its headquarters from New York City to Nevada and began letting all employees work remotely full time.

But in 2022, as inflation has soared, stocks have entered a bear market and crypto has shed 60% of its value, growth at some fintech companies has slowed abruptly. Fintech stocks have declined even more than the S&P 500. Valuations in new funding rounds for private fintechs have started to fall, and layoffs have begun—most notably at top U.S. crypto exchange Coinbase and buy-now, pay-later company Klarna.

Venture capitalists have begun advising startups to hunker down and cut costs, so companies have started to spend less on marketing. That has led to fewer new users for some Socure clients and less revenue for Socure–significantly, about 80% of its revenue is transaction-based, which means it makes much more money when customers are in expansion mode and using its product actively to verify new users’ identities.

“The venture [capitalists’] appetite for how they’re looking at burn [rates] relative to growth rates” affects Socure’s customers, Ayers says. (Burn rate refers to how much money a business is losing each month). He adds that, as categories like digital banks and buy now, pay later have become more competitive, startups’ costs for acquiring new customers have risen sharply, also forcing them to pull back on marketing.

“These are all compounding pressures across the whole industry,” he says. He claims that among Socure’s top 100 customers, it has had “zero churn” since 2019. In other words, none of its top 100 clients have stopped using Socure over the past few years—it’s just that they’re attracting and screening fewer new users, meaning less revenue for Socure.

Beyond slowing growth, another major problem has surfaced for Socure over the past three months: it has seen a notable rise in critical reviews from anonymous employees on Glassdoor. Five reviews use the word “toxic” to describe the leadership team or work environment, with one writing, “The attitude sent down from Leadership is very ‘shut up and work.’” Another reads, “Management encourages working to the point of burnout and collapse.” In response to these criticisms, Ayers says, “Our culture is one of high growth and high impact. We are and strive to be a top 10% performing company in the world … this requires us to work very hard and very smart.” He says the company is trying hard “to build an inclusive environment where employees can speak their mind.”

Five of Socure’s 58 total Glassdoor reviews also criticize the company for either lacking diversity or for not trying to make the workplace more diverse and inclusive. Ayers says Socure is “very aggressive in our commitment to equitable hiring, compensation, promotion and mentorship of all of our people.” He says the company’s leadership team is “40% people of color.” Its website shows that among its 12 top executives, two are women.

“Our culture is one that we’re really focusing on performance versus some folks who want their personal needs to be served by a for-profit corporation,” Ayers says. “We have people on our team who want us to make public statements and respond to every individual celebration. Our message has been, we really need to focus on the mission and the vision for what we’re trying to achieve … Not everyone agrees with that.”

Ayers insists he has put considerable effort into making Socure’s product inclusive. The company released research last fall indicating that Socure’s A.I.-based identity verification service increased the number of Asian, Hispanic and Black customers who were automatically approved for a customer’s service by 46%, 36% and 28%, respectively, compared with that of a “legacy identity verification provider.”

Over the past two years, Socure has also faced a few lawsuits. Two were workplace discrimination lawsuits, both of which have been sent (as required by Socure’s employment contract) to binding arbitration. Socure cofounder Sunil Madhu is also suing the company, alleging that it hasn’t let him exercise his stock options. Ayers declined to comment in detail on any of the pending lawsuits, saying, “We dispute any and all allegations and intend to vigorously defend our position.”

With additional reporting by Dylan Sloan.

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