Layoffs are coming to ConsenSys, the Ethereum-focused startup incubator and blockchain technology conglomerate. According to sources at the company, ConsenSys is quickly spinning out startups that it previously supported, which will drastically impact its workforce and leave an uncertain fate for one of the blockchain world’s most ambitious and well-funded startups.
ConsenSys runs an internal incubator called ConsenSys Labs that houses startups — “spokes,” in company parlance. ConsenSys Labs incubates around 36 spokes, according to an email sent by Shawn Cheng, a partner at Labs. Spoke team sizes range from 5 employees to as many as 50, says a source familiar with the spokes, who also speculates the total number of employees who will be let go could be as high as 50 to 60 percent of ConsenSys’ approximately 1,200-person workforce.
A term sheet reviewed by The Verge and given to at least two incubated startups within the company showed that ConsenSys is beginning to spin out its large portfolio of blockchain projects, often without the financial support they’d need to find outside funding and succeed. When reached for comment, a representative for ConsenSys did not deny that layoffs were impending, and only said that the company is speaking with every spoke and project to “determine a path forward, whether that will be internally as a part of ConsenSys 2.0, or as an external entity.” The vast majority of people working at spokes are ConsenSys employees, and many spokes don’t yet have a revenue-viable product.
The news comes just a month after the company laid off around 13 percent of its staff. ConsenSys’ founder, the cryptobillionaire Joe Lubin, announced a restructuring to “ConsenSys 2.0,” an attempt to streamline the company. But two sources say the company is actively looking for investment. “They’re using the 13 percent announcement I would imagine to give comfort to potential investors about the small-scale downsizing,” one source says. Lubin has been open about looking for external funding in the recent past.
ConsenSys was founded in late 2014 by Lubin to “boil the ocean,” as one industry insider put it — to create a second, entirely decentralized internet that wouldn’t need institutional oversight to function. It was the culmination of an idea that had haunted him since the financial crisis that began in 2008, which he thought then was the harbinger of the end of the modern world as we know it.
Lubin is credited as the co-founder of Ethereum, a decentralized platform for applications and a cryptocurrency based on Ethereum, Ether, that was introduced in a 2013 paper by Ethereum co-founder and programmer Vitalik Buterin; its value rose 13,000 percent in 2017, with the price of a single ETH token hitting a record high of $1,417.38. That incredible rise made Lubin one of the richest men in crypto, with a net worth of between $1 and $5 billion, according to Forbes. He had been using his fortune to fund ConsenSys, but as the price of Ethereum has fallen sharply this year — it’s currently trading at $102.44, a drop of around 93 percent since January — the future of ConsenSys has fallen into doubt. As Forbes also reported, ConsenSys has a burn rate of around $100 million per year.
“The world has not collapsed as [Lubin] planned, and so he needs to pivot his company because it was orchestrated for a vision only where Ethereum would be $10,000,” says the source.
Through ConsenSys Labs, the company hoped to populate Lubin’s new internet with the creation of its own decentralized applications (“DApps”). Now, the source says, the Labs program is also being revamped; it will cease to be an incubator for a range of startups and will instead act as a more traditional investor. Most of the spokes will be forced out, says the source — aside from those that are deemed “core Ethereum tools,” those developer-facing products that make it easier to build DApps on the Ethereum network.
“They’re asking us to take a one million dollar valuation for less than a month and a half of runway”
According to the source, these core tools include Infura (which allows access to the Ethereum network), Metamask (brings Ethereum network access to browsers), PegaSys (“enterprise grade blockchain,” according to their website), Alethio (a blockchain network analysis tool), Kaleido (“Bringing businesses together through blockchain to create more meaningful and beautiful outcomes”), and Truffle (a smart contracts service). Many of the other spokes are expected to leave ConsenSys, in what the company is calling “accelerated spin outs”: management is offering the startups they incubated either two months of severance or an equity stake of nearly 10 percent and a convertible note that would represent around a month of a spoke’s burn rate as part of a deal for a spin out, according to the term sheet.
“They’re asking us to take a one million dollar valuation for less than a month and a half of runway,” the source says. A private Slack thread reviewed by The Verge tells a similar story. “Those spokes being shut down now without option to get outside funding (i.e., CS no longer wants to invest) get the 2-month severance package and COBRA,” wrote one developer in the thread. A few spokes, however, were given until February to decide whether to spin out or take severance. “Regardless if your Spoke is crushing it or showing minimal traction, each team will need to take a close look at their business and examine how their strategies will best compete in the market,” Cheng’s email read in part.
These days, the mood at ConsenSys is bleak; it’s clear the freewheeling days of expensing $14,000 in two weeks or buying day-of Emirates business-class tickets are over, says a source. And according to an email sent by Frithjof Weinert, who works in finance at ConsenSys, the company is “looking to reduce spending that isn’t absolutely necessary for business success,” starting with travel and events; some hiring has also been put on hold.
“The office is empty, people are only finding out who’s getting fired because you try to to send Slack messages and they’re not there,” a source says. “ConsenSys won’t create a list [of the projects that are being spun out] or send out anything in writing because they’re afraid of everything going to the press.” The source added that, earlier that day, all the spoke leads had a meeting with Cheng and Ron Garrett, who also runs ConsenSys Labs; when asked, they didn’t agree to create or provide a list of spokes or what would be happening to them.
“It was so shady,” the source says. “They were firing people they had hired two weeks beforehand. They were firing people who were pregnant. Whose wives were pregnant.”