Rich Barton

Zillow.com, the heavily-funded Seattle online real estate startup, today cut 25 percent of its staff in a move that the company hopes will extend its cash position long enough to ride out the economic crisis.

The elimination of 40 employees brings staffing at Zillow to about 105 employees.

In a blog post titled "Difficult times, difficult decisions," Zillow.com Chief Executive Rich Barton said the cuts were necessary in order to prepare for what he believes will be a prolonged recession.

"This was an incredibly painful decision for me and the leadership team, but, in the end, we concluded that we had no choice but to securely batten down the hatches as we sail into a major economic storm," he wrote.

Zillow is one of the most heavily-funded Internet startups in Seattle, having raised a whopping $87 million from Benchmark Capital, Technology Crossover Ventures, Par Capital and others. It still has a lot of cash on the books and the current reduction in staff is a move to try to extend the life of the business if a recession drags on.

Barton noted that the company's business, which is based on advertising revenue, continues to grow.

"While our revenues do not yet cover our expenses, those revenues have been growing at a rapid pace and we will continue to have open positions in areas that are directly tied to revenue, such as advertising salespeople," he wrote. He also said Zillow's online traffic grew by 42 percent to 5.4 million unique visitors last month.

Zillow is not the only Seattle area online real estate startup that is cutting back. Earlier this week, Redfin announced that it was cutting 20 percent of its work force in part due to the troubles in the overall real estate market. And there's talk that other venture-backed companies will be trimming back soon, especially following warnings of prominent venture firms such as Benchmark (a Zillow backer) and Seqouia Capital (which bankrolled Zillow competitor Trulia).

Companies like Zillow that rely on online advertising revenue and hired aggressively over the past few years may be in one of the weakest positions, said industry observers.

Even though the recent layoffs may bring to mind the struggles of the dot com bust, some are hopeful that the carnage won't be nearly as bad this time. More than 20,000 people lost jobs at technology companies in Washington state during the last down cycle.

"I think there will be some job losses in the tech sector, but nothing like what we saw last time," said Craig Sherman, an attorney at Wilson Sonsini Goodrich & Rosati who works with startups. "Because, again, we didn't have a bulge of over hiring. People are looking at other ways to save money, slowing hiring rather than letting people go and looking at every possible way of stretching dollars."