GoPro is in Trouble

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Long the "Hardware is Hard" Narrative

GoPro Inc. ($GPRO) announced extreme guidance this past week. Extremely bad guidance. The hardware-manufacturer-wouldbe-software-developer-wannabe-content-provider-aspiring-drone-player lowered guidance for revenue and gross margin and offsetting measures like job cuts, exec compensation cuts, and discontinued products (discounted drones anyone?). Disputed reports abound that JPMorgan has been hired by Nick Woodman to shop the company. Doesn’t sound like he’ll be doing many guest Shark Tank appearances anytime soon. The company has a $300mm credit facility and $150mm in converts. With negative operating cash flow and and increasingly bad trends, Woodman may soon be fielding pitches from restructuring bankers. 

But at least he's still in business. Luma, a home WiFi system maker reportedly had to effectively sell for parts to First Alert. Investors included Andreesen Horowitz, Accel Partners and, get this, Amazon Alexa Fund. Similarly, Eero, the mesh Wi-Fi router startup, laid off 20% of its workforce. It has raised $90mm in VC. Yes, hardware is hard.

But not all tech is "busted" and not ALL hardware is "hard." Apparently 16% of Americans now own a smart speaker. In case you weren't convinced that "voice" may be a VERY big piece of the future. As we noted around this time last year on PETITION, mass adoption of voice has the potential to disintermediate brands and cause more retail distress. 

Notable (Cov Lite Loans, Delaware Bankruptcy Filings & More)

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More = Busted Tech, Investment Banks & REITS

Biglaw. Summer Associate satisfaction surveys (firewall). In case anyone actually gives a sh*t.

Busted Tech. A view that recent IPOs will never make money. Meanwhile, Toys R Us is a harbinger of, you guessed it, BUSTED TECH. 

Canadian Retail. Also looking increasingly ugly.

Cov Lite. We're old enough to remember when people said it was dead and would never come back. Memories are short AF. 

Delaware. This article about retail bankruptcy cases avoiding filing in Delaware misses the mark widely. Like, way outside. Any DE practitioners want to opine - without attribution - on this?? Email us here.

Investment Banking. Jefferies can't trade for sh*t but advisory fees baby. Given these advisory fees, it looks like UBS wants to get back into the restructuring advisory game. Again. For, like, the 283th time. 

J.Crew. Investors are pissed.

New York. Is it in danger of becoming Detroit?

Puerto Rico. The hits just keep on coming. Sad, really.

REIT Investments. This is an interesting piece about alternative investments by REITS. Simon Property Group ($SPG) looks particularly active.

Retail (Taxes). When you're industry is in secular decline, fight for scraps. Here, tax changes.

Long Regulatory Disruption of "Gig Economy" Disruption

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P.S. What Happened to Unicorn Homejoy LLC? 

Busted Tech? (Long Regulatory Disruption of Disruption). There are, what, 183929 Uber-for-X style companies today offering everything from weed delivery to in-home massages...? Most of these companies - Uber and Lyft included - are built on the 1099-economy where "gig" workers are framed as contractors rather than employees. Given that these companies are struggling to be profitable to begin with, it's especially helpful for these companies to avoid outlays for overtime pay, health insurance, worker's compensation, and other W-2 employee-related expenses. Except now, for the first time, a challenge to this model is seeing its day in court as a GrubHub Inc. ($GRUB) employee is suing for reimbursement of wages. Uber and Lyft have both settled prior (similar) suits out-of-court. Instacart, Caviar and Postmates have also been sued. A similar lawsuit, in part, forced Homejoy LLC into an assignment for the benefit of creditors in August 2015 and Chapter 11 in late-2015.* Which is to say that many companies - of GrubHub's status and otherwise - will be watching this fight closely as it has potentially existential ramifications for the gig economy going forward. Sometimes moving fast and breaking things runs into a regulatory roadblock.

* We thought it made sense to dive a bit deeper into what ultimately happened to Homejoy LLC, which, for the uninitiated, was at one time a Y-Combinator darling valued over $1b (after approximately $64mm of funding). Why? Because more often than not companies are celebrated on the way up and quickly forgotten after they come crashing down. It should be noted what happened to the company, its employees, and its assets after the crash. Here is what we know from the bankruptcy filing and otherwise:

  • Per Re/Code, Google hired "around 20 members of Homejoy's product and engineering team." Notably, Google Ventures was one of the largest creditors of Homejoy's bankruptcy estate - to the tune of approximately $18mm. 
  • Per the company's court filing, the Google hire occurred in July 2015 and the purchase price had to be several million dollars because it subsumed not just the tech team, but enough "consideration" to payoff the company's secured credit facility from Silicon Valley Bank, fund the wind-down AND leave money in the bankruptcy estate for a liquidating trust. See below. 
Company's Bankruptcy Disclosure Statement, filed 9/15/16. 

Company's Bankruptcy Disclosure Statement, filed 9/15/16. 

  • The company sold its customer list, service provider list, trademarks and domain names to entity called ABAP Holdings Inc. Some may recall that this transfer wasn't without its own controversy. The total purchase price was $100k.
  • The company sold its remaining office equipment for $20k.
  • The company seemingly tried to sell its source code but apparently was unable to find a buyer as the bankruptcy docket reflects no motion filed with the Bankruptcy Court seeking approval of said sale.  
  • The company would have managed the wind-down without a chapter 11 filing were it not for the "gig economy" lawsuits. It is unclear whether payments were ever made to the plaintiffs out of the liquidating trust or, if so, for how much. 

Clearly this wasn't the ending that Google Ventures, First Round Capital, Andreessen Horowitz and others wanted. 

9/17/17 Update. Apparently that gig economy lawsuit with massively disruptive potential didn't get off to a hot start for the plaintiff.

Notable (Sears Canada, Joyus, Community Health Systems & More)

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Busted Tech. Joyus, an online shopping platform that relied heavily on video, shuttered this past week announcing in a leaked memo that it would undertake an assignment for the benefit of creditors. The company had no venture debt but did raise nearly $70mm from Accel Partners, a Time Warner venture arm and investors affiliated with a Walmart ($WMT) venture affiliate.

Healthcare. Community Health Systems ($CYH) announced its preliminary Q2 financial and operating results and they weren't very pretty. Net operating revenues were down nearly $400mm relative to the same quarter last year. Categorical losses, however, were generally lesser than the year before. The stock - and that of spun-off Quorum Health Corporation ($QHC) took a dive after the report. Meanwhile, smaller ($1-10mm) healthcare providers continue to file for bankruptcy.

Noble Group. With $3b of debt and various other issues, lots of folks are souring on the name.

Och-Ziff. We've heard of camp counselor bonuses from satisfied parents but this $280mm package takes things to a whole new level. Also, long luck. 

Pure Unsupported Fantasy. Otherwise known as Sycamore Partners' claim that Dollar Tree Stores submarined the Family Dollar merger. So Dollar Tree says, anyway.

Sears Canada. And we thought we were aggressive with some of our commentary:nice headline. Meanwhile, it appears that Eddie Lampert and Bruce Berkowitz couldn't figure out a way to get along in the sandbox, calling off their joint effort to bail out the embattled Canadian retailer. Now ESL Partners LP may sell some of its stake to take a tax loss. Berkowitz's Fairholme Capital Management LLC increased its holdings not too long ago.

Shopping Holidays. Get ready because it is undoubtedly coming. Fresh on the heels of Amazon Prime Day, other retailers are getting jiggy with it (looking at you Walmart and JD.com) and intend to start their own shopping holidays. Looks like the big retailers want to make Labor Day even more pointless.

Busted Tech: Shyp It Yo Own Damn Self!

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The ubiquitous Uber-for-X designation doesn't seem so ubiquitous anymore. That's because a lot of those companies have failed or are failing. Take Shyp, for instance, an on-demand logistics/shipping service where couriers came to your home, packaged your wares (Ebay anyone?) and shipped them for you. "Came" being the operative word. The company announced that it's retrenching back to SF, abandoning service in Chicago/LA/NYC. Choice quote (after getting $50mm in venture capital from Kleiner Perkins), "'Investors are looking to put capital into businesses that are cash-flow positive." Funny how that works. With so much "tourist capital" (read: sovereign wealth funds, pension funds, Fidelity Investments in the case of Snapchat ($SNAP)) flowing through venture capital, expect a lot more coverage of "busted tech" to come.

Jawbone Won't Be the First/Last in Busted Tech

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Busted Tech. We're not in the business of saying "told you so," but, well...yeah, we told you so. We noted last year that Jawbone was likely effed. Sadly, we were right. Hardware is tough stuff. And so is the music streaming business: after taking on $70mm in venture debt back in March, Soundcloud is answering to its investor overlords - including Ares Capital - and slashing costs. It'll be toast soon. 

When a Moving Company Tips Off a Busted Tech Company

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Busted Tech (An Advisor Tips Off the Press). Oops. Hello, a sleep monitor company with a product called Sense that raised $40mm in funding at a valuation of $300mm is shutting down after failing to consummate a "for parts" sale to Fitbit. Axios broke the story after noticing a moving truck outside of the company's headquarters and observing empty desks through the window from the street. Thats some serious private investigator type sh*t. Apparently the movers worked for Sherwood Partners - and said as much to the Axios folks. Oops. Like Lily Robotics Inc., this is a company that ran a highly successful Kickstarter campaign but wasn't able to parlay that into a sustainable business. Here, apparently, there isn't even any IP that is worth selling through a bankruptcy. Elsewhere in tech, we love when non-lawyers think that they have the solution for legal processes simply because they have experience using lawyers.