Alphabet’s Moonshot X Lab cuts staff, turns to outside investors

By Julia Love

Alphabet Inc.’s lab for pioneering technology is laying off dozens of employees as it turns to outside investors to help fund its ventures.

The division, known as X, has in recent months ramped up discussions on funding with venture capitalists and other investors, according to people with knowledge of the matter who asked not to be named as it is private. The lab is adopting a new structure that’ll enable its projects to more easily spin out of X as independent startups with support from Alphabet and outside backers, according to one of the people and an email to staff obtained by Bloomberg.

X seeks bold approaches to major challenges like climate change and connectivity, but its efforts have yielded few durable businesses thus far.

“We’re expanding our approach to focus on spinning out more projects as independent companies funded through market-based capital,” Astro Teller, who leads to lab, wrote in the email. “We’ll do this by opening our scope to collaborate with a broader base of industry and financial partners, and by continuing to emphasize lean teams and capital efficiency.”

As part of the restructuring, X is laying off dozens of employees, according to one of the people with knowledge of the matter. The layoffs are focused on support staff, the person said. Alphabet didn’t respond to an email seeking comment.

Launched by Google co-founders Larry Page and Sergey Brin, X has captured the public imagination by pursuing projects from self-driving cars to high-altitude balloons that connect remote communities to the internet. But in recent years the lab has come under more pressure to show that it can turn its speculative bets into profitable businesses, and Alphabet as a whole is waging a campaign to cut costs.

This month, Google eliminated hundreds of jobs on teams including hardware and engineering, with more cuts potentially on the way as it sharpens its focus on artificial intelligence. Alphabet Chief Financial Officer Ruth Porat, who has sought to instill greater financial discipline, is moving into a new role as president and chief investment officer, in which she will oversee a division that includes X.

“She will put more heat into the kitchen and help drive success and viable businesses,” Dan Ives, an analyst at Wedbush Securities, wrote in an email.

Since Google reorganized itself as a conglomerate in 2015, X’s moonshots have sought to “graduate” as Other Bets, or independent ventures under the banner of parent company Alphabet. But Alphabet could only accommodate so many Other Bets, creating a bottleneck for X ventures that were ready to take the next step, according to one of the people with knowledge of the matter. Startups within X often faced a choice between waiting for a spot to open up or striking out on their own.

X employees had explored raising outside capital for their ventures in the past, but they ran into concerns from Alphabet leadership, according to two people with knowledge of the matter.

In addition to seeking venture capital, X has met with family offices, sovereign wealth funds, private equity firms and strategic investors, or companies operating in the same industries that the moonshots are targeting, according to the people.

Silicon Valley’s innovation labs have come under threat in a time of layoffs and budget cuts. Last year, Google slashed most jobs at Area 120, an in-house startup incubator. X cut some jobs last year but has refrained from making more significant changes until now.

“This approach will give us more opportunity to focus on what Xers do best: inventing breakthrough technologies to help solve some of the world’s most pressing challenges,” Teller wrote in the note to staff. “Because the world needs moonshots more now than ever.”