Socure, a recently valued $4.5 billion fraud prevention and identity verification startup, laid off 69 employees this week, or 13% of the company’s workforce, said co-founder and CEO Johnny Ayers . Forbes today. The layoffs primarily affected the marketing, sales and human resources teams, Ayers said, with “very little impact on engineering, product development and data science.” Until he confirms the dismissals of ForbesSocure had made no official announcement of its downsizing, but word started spreading 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 in the bank after raising $450 million last November, but now he wants to demonstrate that it can be a sustainable business that doesn’t need constant infusions of outside capital. “As we look to public markets…we want to get decent cash flow and profitability,” 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. He has a sizable list of clients ranging from Citibank and digital bank Chime to gaming site DraftKings. Ayers claimed “four of the top five banks” in America as customers, as well as the “largest crypto exchange” and top NFT markets. “We have pretty much every major consumer fintech,” he says.
Socure’s bumpy growth over the past two years is typical of many fintechs. It has grown rapidly during the pandemic, growing from 283 customers at the end of 2020 to more than 1,000 currently, more than half of which are financial services companies. In 2021, Socure’s valuation tripled in seven months, reaching $4.5 billion. The workforce has exploded, from 120 people at the end of 2019 to more than 500 at the start of the year. It moved its headquarters from New York to Nevada and started letting all employees work remotely full-time.
But in 2022, as inflation soared, stocks entered a bear market, and crypto lost 60% of its value, the growth of some fintech companies abruptly slowed. Fintech stocks have fallen even more than the S&P 500. Valuations of new funding rounds for private fintechs have begun to fall and layoffs have begun, including at major US crypto exchange Coinbase and the company at buy now, pay later, Klarna.
Venture capitalists started advising startups to hunker down and cut costs, so companies started spending less on marketing. This has resulted in fewer new users for some Socure customers and less revenue for Socure – significantly around 80% of its revenue is transaction-based, meaning it makes a lot more money when customers are in expansion mode and actively use their product to verify the identity of new users.
“The company [capitalists’] appetite for the way they watch burn [rates] relative to growth rates” affects Socure customers, Ayers says. (Burn rate refers to the amount of money a business loses each month). He adds that as categories such as digital banking and buy now, pay later have become more competitive, the costs for startups to acquire new customers have risen sharply, also forcing them out of marketing.
“These are all pressures building up across the industry,” he says. He claims that among Socure’s top 100 customers, there has been “no churn” since 2019. In other words, none of his top 100 customers have stopped using Socure in the past few years, it’s just that they attract and select fewer new users, which means less revenue for Socure.
Beyond slowing growth, another major issue has emerged for Socure over the past three months: it has seen a noticeable increase in critical reviews from anonymous employees on Glassdoor. Five reviews use the word ‘toxic’ to describe the management team or work environment, with one writing: ‘The attitude conveyed by management is very ‘shut up and work’. Another says: “Management encourages work 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 one of the top 10% most successful companies in the world…it requires us to work very hard and very smart. He says the company strives “to create an inclusive environment where employees can speak up.”
Five of Socure’s 58 total Glassdoor reviews also criticize the company for lacking diversity or for not trying to make the workplace more diverse and inclusive. Ayers says Socure is “very aggressive in our commitment to fairly hiring, compensating, promoting and mentoring all of our employees.” He says the company’s leadership team is made up of “40% people of color.” Its website shows that of its 12 senior executives, two are women.
“Our culture is one where we really focus on performance versus some people who want their personal needs served by a for-profit company,” Ayers says. “We have people on our team who want us to make public statements and respond to each individual celebration. Our message was, we really need to focus on the mission and the vision of what we’re trying to achieve… Not everyone agrees with that.
Ayers insists he has gone to great lengths to make Socure’s product inclusive. The company published research last fall indicating that Socure’s AI-powered identity verification service increased the number of Asian, Hispanic and Black customers who were automatically approved for a customer’s service. 46%, 36%, and 28%, respectively, compared to 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 were sent (as required by Socure’s employment contract) to binding arbitration. Socure co-founder Sunil Madhu is also suing the company, alleging it did not let him exercise his stock options. Ayers declined to comment in detail on any of the pending lawsuits, saying, “We dispute all allegations and intend to vigorously defend our position.”
With additional reporting by Dylan Sloan.