Internal Combustion
Interns
Tech layoffs are fertile soil for the business and tech press - tens of thousands of subjects are suddenly out in the wild, ready to talk. You can swing a stick and hit a dozen Insider interviews with laid off tech workers in various states of crisis - pregnant, on a foreign visa, Canadian. The list is endless.
One category of worker - the intern - was hit particularly hard in the cost shedding. In addition to trimming workers higher up the ladder, large firms are considering cutting or eliminating internship programs, essentially a firehose of what they consider to be top talent cherry picked from the nation’s elite colleges and universities.
Estimates of the number of interns at major tech companies range, but Google claims more than 3500 and Amazon brought on an astonishing 18,000 in 2022. For years, big tech firms have created a system for students at top schools to snag cushy summer gigs and fight for six-figure job offers straight out of college. One went so far as to subsidize a major motion picture to propagandize how great its internships were.
Unlike the internships their less fortunate peers are offered at less obscenely rich companies, Facebook and Google put interns straight to work - instead of fetching coffee or doing mundane administrative tasks, they’re assigned to coding teams and given real work on existing company products. Which is good, as far as internships go. But it can pigeonhole tens of thousands of young kids, many of whom have spent years tailoring their education and resumes to land a top tech job at the ripe old age of twenty-two. If you’ve spent three or four years doing things the Google or Facebook Way, have you received a well-rounded work skillset?
Many interns and new hires will now be forced to answer that question, as companies lay off thousands of interns, rescind job offers, and make the programs even more hypercompetitive in future years as they reduce the number of open slots.
Aside from the impact on individual students, tech firms have warped the education landscape:
The number of [computer science] undergraduates majoring in the subject more than tripled from 2011 to 2021, to nearly 136,000 students
This is not necessarily a bad thing - more of our daily lives is run by computers than ever. Having a generation capable of maintaining and building all the gadgets we demand in our daily lives is a necessary evil. But, how much of the boom in CS degrees is driven by the outsized salaries these companies were offering to recent grads - Google’s entry-level engineers earn close to $200,000 - and how much is true interest in computer science? It’s impossible to know, because the incentives have been skewed for so long.
When we talk about the sheer number of workers at Google, Amazon, and Facebook, it’s important to remember that many were snatched straight out of college, young and impressionable, baited by perks and big salaries and groomed to perpetuate engineering and management structures created years prior.
Of course, this sort of gatekeeping is wildly unequal. Tech firms have long been accused of discrimination against students who graduate from schools SV deems lower tier. Google was forced to expand its recruitment to HBCUs amid criticism it only hired interns from the likes of MIT and CalTech, with mixed results.
A steady stream of young, impressionable interns impacts other areas of the hiring process:
At Google, the famously brutal recruiting system has many people turning down interviews when they realize the process could involve months of prep work. At Facebook, nearly half of the company's engineering candidates turned down job offers in the first quarter of 2021, leading a senior recruiting member to write a "Why hiring is hard right now" memo for engineering staff.
Yeah, when you’ve got months or years to evaluate thousands of interns literally begging to work for you, making your outside hiring practices more grueling doesn’t dilute your talent pool. You’ve got a captive clone army to fill your ranks, why bother hiring people who’ve done things differently somewhere else?
Tech interns are often well compensated, but they’re also kept in a corporate cocoon for months on end and taught to do things in very specific ways, pitted against fellow interns to earn coveted ‘high achiever’ status. Rather than celebrating diversity, firms are cherry picking single-digit percentages of the nation’s most impressive-on-paper students and putting them through summer brainwashing camps. Not great!
There may be positives in the aftermath of the latest round of layoffs, however. Students who’d previously been laser-focused on ending up at Google or Facebook may use their degrees and their summers to work at smaller tech firms building more interesting things, or, hell, they might go into academia or a career that doesn’t involve tweaking algorithms to radicalize their grandparents or sell them shit they don’t need.
More Interns
Speaking of people who willingly join work cults, last month the owner of famed restaurant Noma announced he was closing his doors - to reopen as some kind of food lab at, one assumes, even more astronomical pricing. For patrons, Noma’s style of cooking and presentation elevated dining to stratospheric heights. Behind the scenes, however, things were decidedly different:
Every year, hundreds of front-of-house and chef hopefuls arrive in Denmark to undertake what is called a stage at Noma: an unpaid internship lasting three months. It’s far from the only restaurant in the city, or the world, that does this – Redzepi was a stagiaire at El Bulli in Spain. But the number of stagiaires at Noma is notable. Before the pandemic, it accepted about 30 at the beginning of each internship cycle. In 2019, Noma employed 34 paid chefs, meaning that the best restaurant in the world relied heavily on unpaid labour to produce its food.
The year before the pandemic hit, Noma had nearly half its staff working without pay. Many distinguished restaurants rely heavily on unpaid labor in the form of ambitious chefs who can afford to take a few months off to burnish their resumes at some of the world’s best eateries. But, like Google or Facebook, chefs trained in Noma’s intense and - some say - abusive environment bring those lessons with them to their future jobs, or the restaurants they open. Copenhagen has become an international food mecca, but those stuck working in its restaurants describe brutal, toxic conditions.
The restaurant industry has gone through an upheaval in the wake of the worst months of the pandemic, and it’s not clear it’s fully come out the other side. But, at least we’re finally able to have the conversations about ways to improve conditions, make ownership more equitable, empower oppressed staff to speak out against indignities. For the first time in this renaissance of modern dining, the industry seems willing to grapple with its many demons.
Another question, as with all things service industry, is whether diners will care enough about how restaurants treat their employees to apply pressure from the top down. If we continue to blindly shell out hundreds of dollars a plate at the world’s finest restaurants, we may enable their chefs and owners to overwork and mistreat their employees. If we spurn cost increases on menus and force restaurants to operate on razor thin margins, we ensure restaurant jobs remain unstable and unpleasant, often a last resort for the desperate. Noma and its ilk have proven food can be a beautiful thing. It’s about time life behind the line resembled that of the diners enjoying the fruits of their labor.
BNPL
When you read a sentence like this in the Sunday DealBook newsletter:
The industry is now facing an existential crisis, as profits remain elusive, valuations plummet, competition increases and regulators ask tough questions about the lending practices behind B.N.P.L.
You know it’s gonna be a banger! It’s been a minute since we checked in on our favorite subprime lending industry gussied up with a fancy acronym. How’s it going?
Goldman Sachs’s ‘platform’ division (heavily BNPL) lost $1.66 billion in 2022
Klarna slashed its valuation from $45.6 billion to $6.5 billion
Affirm shares down 90% from their 2021 peak
Square (now Block, ugh) cut Afterpay valuation in half
Shucks! It turns out subprime lending isn’t such a great business when regulators and large competitors take an interest. My Chase credit card, for instance, offers me one-click zero percent financing on any charge larger than a hundred bucks or so. I’ve got BNPL literally at my fingertips - though (unlike most BNPLs) Chase can ding my credit if I don’t pay them back, which is a bummer.
So, things in the BNPL sector are pretty grim. The author asks:
What happened?
Hey! That’s my line.
Initially, the heaviest B.N.P.L. users were young women buying clothes and beauty products, and the option then grew among consumers of all ages, for any imaginable purpose or product. In the early days of the lockdown, Peloton exercise bikes were a popular purchase for B.N.P.L. customers. Ahead of its initial public offering in 2021, Affirm flagged its reliance on Peloton as a business risk, noting its biggest merchant partner accounted for more than a quarter of its revenue.
Having a quarter of your company’s revenue tied up in a single merchant selling exercise bikes during a pandemic is indeed a business risk! Elsewhere, Klarna executives are ‘candidly’ saying what we all already knew:
“Candidly, ‘buy now, pay later’ is just a feature,” David Sykes, Klarna’s chief commercial officer, told DealBook. “If all you’re doing is offering the ability to break a purchase up into installments, we don’t think, long term, that’s dynamic enough.”
Right, yeah. So what are BNPL companies doing to convince investors they aren’t simply one trick ponies? TradFi!
Mr. Sykes said Klarna was at least as focused on improving the overall shopping experience as it was on helping consumers pay for products. This means offering comparison shopping within the Klarna app, and providing discounts.
Oh good, my subprime lender can now give me a shopping app? And coupons?!
In Goldman’s case, GreenSky targets customers with high credit scores who are paying for home improvement projects rather than small-ticket items, a spokesperson said.
We’ve reinvented the HELOC!
Affirm offers other types of loans, such as monthly installments at 10 percent interest.
And the personal line of credit! Is there anything BNPL can’t do? Oh, right, make money:
…Affirm and Afterpay, have never turned an annual profit; Klarna says it was profitable in its early years.
When I first wrote about BNPL I referenced layaway’s origins in the Great Depression. Either the Dealbook columnist is a fan of this newsletter, or he reached the same conclusion I did:
[Layaway programs] were designed to keep people shopping rather than to generate profit directly. More than 80 years later, the fintech version may wind up with similar aims.
The problem is, BNPL is not run by merchants who benefit from said shopping. They have always been a middleman whose value proposition to consumers was cheap (free!) financing for larger purchases and whose promise to merchants was they’d get paid up front in exchange for a cut of the sale. Just like a payday lender, a BNPL firm has little recourse to recover funds from shoppers who skip out on the bill, and with large banks entering the financing space, merchants no longer have a reason to pay a BNPL middleman an onerous cut of their profits.
How long will banks and investors continue to prop up this useless appendage? The billions they continue to pour into BNPL indicate we’ve got at least a couple more years to watch the industry swirl slowly down the drain.
Celsius
Last week we talked about FTX’s corporate governance, or lack thereof. Because the exchange was run by a small number of high level executives and employees, they could get up to all sorts of shenanigans - like lending themselves $65 billion dollars’ worth of customer funds - without much oversight.
Another crypto exchange seeking bankruptcy protection is Celsius, which was run by a former telecom industry exec and sought to portray itself as a serious financial institution.
One problem with positioning yourself as a bank/fintech/whatever is you have to hire a bunch of people and give them access to company systems and finance-y titles. You put them all on your company’s Slack and everyone pretends they are Serious Bankers and not running a crypto Ponzi.
The problem with decentralizing your fraud, so to speak, is you end up with some…problematic chat transcripts:
In April 2022, Celsius’s Coin Deployment Specialist described Celsius’s practice of “using customer stable coins” and “growing short in customer coins” to buy CEL as “very ponzi like.” A few weeks later when Celsius made another push to prop up the price of CEL, Celsius’s former Vice President of Treasury asked where the cash was coming from to make the CEL purchases and Celsius’s Coin Deployment Specialist replied, “users like always.”
Uh oh! This is from an investigator’s report filed in the Celsius bankruptcy case and, frankly, what did they expect? If you hire a Coin Deployment Specialist and VP of Treasury, and they aren’t in on the various scams being run by executives, they’re going to have these kinds of discussions in company chat rooms, which can be subpoenaed by the government. Awkward!
This is not legal or job advice but if you ever find yourself writing messages like this in your company chat, please please please immediately resign and hire a lawyer:
As one employee noted in an internal Slack communication: “if anyone ever found out our position and how much our founders took in USD could be a very very bad look . . . We are using users USDC to pay for employees worthless CEL . . . All because the company is the one inflating the price to get the valuations to be able to sell back to the company.”
Lawyer! Coincidentally, the company disclosed multiple federal investigations last year and the NY AG has sued the former CEO.
Short Cons
FT - “Goldman Sachs agreed a deal last year to transfer a portion of its privately held Russian investments to two of the bank’s former employees, part of the Wall Street firm’s efforts to wind down its operations in the country in the wake of Moscow’s war with Ukraine.”
BBC - “Oil and gas giant Shell has reported record annual profits after energy prices surged last year following Russia's invasion of Ukraine. Profits hit $39.9bn (£32.2bn) in 2022, double the previous year's total and the highest in its 115-year history.”
Balls and Strikes - “Earlier this week, The Boston Globe published a column that dares to ask the hardest question facing the legal profession today: Have white-shoe law firms that protect the ballooning profit margins of sprawling multinational corporations become too woke for their own good?”
NYT - “Ads from major brands are nonexistent on the site. Instead, the ads on Truth Social are for alternative medicine, diet pills, gun accessories and Trump-themed trinkets, according to an analysis of hundreds of ads on the social network by The New York Times.”
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