Toronto– Startup workers fled for bigger, more established companies during the pandemic, revealing the vulnerability of early-stage firms in downturns, new research has shown.

Digging into the data for nearly 180,000 users from AngelList Talent (now called Wellfound), the biggest online recruitment platform for private and entrepreneurial companies, researchers found that job hunters turned away from smaller, early-stage companies in favour of positions at bigger, more established firms in the US.

This is the first study to document it, said Ting Xu, assistant professor of finance at the University of Toronto‚Äôs Rotman School of Management. “Our results explain why startups struggled in the Covid-19 downturn despite a robust financing market,” said Xu, who conducted the study with Shai Bernstein of Harvard Business School and Richard R. Townsend of the University of California San Diego.

They found that, compared to the period before, job hunters were 20 per cent more likely to search for work at companies with more than 500 employees when the US declared a state of national emergency over the pandemic.

The companies were concentrated in sectors such as IT, media, e-commerce, healthcare and business services. Job seekers were also more likely to search companies that were bigger than their employment at the time.

The general trends didn’t change in the application phase. The average size of companies where workers applied increased by eight per cent and the firms were 16 per cent more likely to be in a later stage of fundraising. The overall trend was driven by highly-skilled, better-educated job seekers, which is no small thing, Xu said.

“It’s not only the quantity of talent that matters for firm success, but also its quality,” he said.

“If the shift is concentrated among high-quality candidates, it means that the startups are not just losing access to any talent, but to the best talent that are critical to their success.”

Not only did applications to smaller, early-stage startups drop by 20 per cent, the researchers found these companies became less responsive to the applications they did get and were less likely to hire. The paper has been accepted for publication in The Review of Financial Studies. (IANS)